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Fintech sales take off after DOL fiduciary rule’s partial implementation

Interest in fiduciary-related fintech previously cooled following the election of President Donald J. Trump

Adviser demand for a technological answer to meeting new requirements of the Department of Labor's fiduciary rule has jumped in the three weeks since part of the retirement advice regulation was implemented.

Technology providers said interest in their fiduciary fintech had cooled following the election of President Donald J. Trump, who some speculated would scrap the best interest rule before its targeted April 10 implementation date. Instead, the DOL delayed it until June 9, when part of the rule went into effect while the agency continues to review the entire regulation.

"We've seen a tidal wave of interest since June 9," said Daniel Satchkov, president of RiXtrema, which sells a tool to help advisers compare costs of rolling funds out of 401(k) plans. "I think a lot of advisers were close to doing something for awhile, but they kept waiting because of the delays coming from the DOL."

RiXtrema has signed up 74 firms so far in June for its IRAFiduciary Optimizer, compared to single-digit sales of the tool during the other months of 2017.

RiXtrema's technology generates a report for transactions involving individual retirement accounts, comparing total fees an investor would pay before and after a rollover.

When the firm released the tool in October 2016, it quickly signed up about 30 clients before Nov. 8, when Mr. Trump was elected president.

"Since the election until June, everybody just stopped," he said.

It also helps an adviser show "fee reasonableness," Mr. Satchkov said.

2 provisions

The two provisions that have gone into effect govern adviser interactions with clients in retirement accounts. Under those provisions, advisers must give advice that is in the best interests of their clients, charge reasonable compensation and avoid "misleading statements" about investment transactions and what they're being paid. The entirety of the rule's provisions, which could still see changes, won't be active until 2018.

Aaron Klein, chief executive at Riskalyze, said since May, when it became clear to many that the DOL rule was going to happen, his firm has seen a 40% increase in its growth rate.

"Advisers seemed to say, 'DOL is here, I have to find a way to document that I'm making decsions in their best interest,'" Mr. Klein said.

Riskalyze's Autopilot investment platform includes "one-click fiduciary technology" that will help advisers keep track of the investments within portfolios to make sure they're meeting risk and other parameters and provide documentation of this care.

Another firm, The E-Valuator, sells a tool for advisers that sets investment performance thresholds across mutual funds and exchange-traded-funds in a client's account to help ensure a company is meeting its fiduciary obligations.

For lagging investments, the tool will identify suitable replacements.

"The week of June 9 we had two phone calls from very large, well-known institutions that decided now they had better act," said Collin Miller, president of The E-valuator. "They had been working under the assumption that the rule was going to get pushed over."

The firm has 22 organizations using the tool, including one of its largest clients, Redhawk Wealth Advisors, which manages about $900 million in assets.

Lisa Graham, product manager of eMoney Advisor, said this month firms have been very active in terms of asking about how the company's products can help advisers meet the fiduciary rule.

She said eMoney, which is owned by Fidelity Investments, has seen a greater number of advisory firms expanding their eMoney relationship with add-ons this year.

Soon they'll be able to add a new feature offered by CapitalROCK that will examine the client's current retirement account situation and recommend whether rolling over a 401(k) into an individual IRA or annuity would be best for the client. It will provide documentation of that decision.

In September 2016, eMoney said it was boosting the compliance functions of its financial planning platform to help advisers meet the Labor Department's new fiduciary requirements for retirement advice.

Its "fiduciary framework" adjusts the client on-boarding procedures and enhances monitoring and archiving of the interactions between clients and advisers, all to provide documentation that shows advisers acted in the best interests of clients when giving recommendations.

"Fintech sales take off after DOL fiduciary rule’s partial implementation" originally appeared on InvestmentNews, a sister publication of Pensions & Investments.