The uncertainty around how the Trump administration will handle the DOL fiduciary role remains as we speak. But what is becoming clear is that one way or another the era of “Acting in the best interest of customers” and “Transparency” will only move forward. The cultural shift is happening and regulatory bodies are taking into account this crowdsourced sentiment despite confusions due to delays and objections from large institutional players.
The fiduciary role definition has been expanded as of the end of June and now it not only includes advisors handling retirement accounts but anyone giving ongoing advice even without charging a fee. This may push the industry to eliminate certain commission layers and certainly requires advisors working on commission to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as, the advisor receiving a higher commission or special bonus for selling a certain product). Read more details: DOL Fiduciary Rule Explained as of June 9th, 2017 | Investopedia
Riskalyze, a fintech that created the dynamic Risk Number metric, reports that the expansion of the fiduciary role has resulted in a spike in the demand for fintech solutions that can handle these issues. Advisors in the US have been relatively slow in embracing the new technologies for all sorts of reasons but mainly because fintech solutions have been scattered. Advisors need to be able to handle efficiently all the stack of the process, from onboarding, profiling, customizing strategies, dynamically adjusting, custody, execution, reporting.
This remains a huge challenge because integration in this space is in the early stages. The industry catering to the needs of advisors is evolving as we speak. It consists of three main groups: (a) the large institutional players like TD America, Blackrock, Fidelity etc, who are developing fintech micro-services and integrating them or acquiring fintech startups and keeping then independent, (b) the independent Fintech startups that growing and integrating more services, like Betterment, Wealthfront, or Riskalyze, (c) the broad software providers, like Salesforce, Oracle etc.
Riskalyze is a great example of a Fintech that is growing into a full stack serving the complex needs of advisors. They started with their patented technology, Risk Number, that is a dynamic objective risk tolerance measure based on a quantitative framework rather than biased qualitative answers. They have added the capability to construct all sorts of portfolios based on this risk metric and have empowered advisors to clearly quantify the risk-adjusted outperformance with this method.
Riskalyze: “Our patented Risk Number® technology objectively calculates an investor’s true risk tolerance utilizing a scientific framework that won the Nobel Prize for Economics.”
Their most recent addition to the Riskalyze fintech stack is the Autopilot capability and the One-Click Fiduciary™ technology. These offer first multi-custodial capability to the advisors and direct execution. So, Riskalyze has built an invisible bridge directly into custody and execution. Autopilot takes model portfolios and implements them, handles the dynamic rebalancing as dictated from any change in the Risk Number. One-Click Fiduciary™ technology keeps accounts on track after that and surfaces the right decisions for advisors to handle an risk number drift, changes in the model, or putting new dollars at work. Strategists and research firms such as BlackRock, Cambria, CLS Investments, First Trust, LikeFolio, Longboard Asset Management, Morningstar Managed Portfolios, SEI Investments, and Swan Global Investments have become a part of Riskalyze’s multi-custodial automated account platform.
Riskalyze’s offer to advisors has two pricing options:
Hello to “Transparency, Best interests, and low commissions!”
Efi Pylarinou is a Fintech thought-leader, consultant and investor.
Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.