DOL fiduciary rule places risk management software center stage

Tech vendors are getting the spotlight thanks to the new regulation and market volatility

Jun 27, 2016 @ 12:01 am

By Alessandra Malito

The Department of Labor's fiduciary rule is putting the spotlight on risk management software these days, assisting advisers in analyzing risk in client portfolios and discussing worrying situations with investors.

Technology vendors are building new features, or emphasizing their existing ones, to meet the needs of the new regulation, which requires all advisers act in their clients' best interests in retirement accounts. Functions include auditing, product analysis and tools to support stronger conversations with clients.

"The technology is there now to really give a clear picture of how much risk a certain portfolio takes," said Lorraine Ell, president and director of training at Excellat Consulting. "Especially with the DOL rule, you have to make sure that you are providing for the client the kind of risk level they are comfortable with."

Evaluating risks in client accounts has become an increasingly necessary task for advisers, who under the DOL fiduciary rule will have to explain with strong support why they invested a specific way on behalf of their clients. Simultaneously, with the markets starting off rocky this year, advisers must be prepared to ward off clients' worries. In response, risk analysis and management software companies exist to analyze, fix and even in some cases build portfolios with appropriate risk exposure.

(Related: Fiduciary covered from every angle)

Riskalyze, a risk alignment software company that pinpoints client risk tolerance with a number, addresses the DOL rule straight on. The company has features such as finding accounts without Best Interest Contract Exemption documents and sending these documents to clients to sign electronically. The software also has an audit trail and a dashboard that combines its risk tolerance, robo-adviser and compliance units.

Aaron Klein, chief executive of Riskalyze, said the company's Risk Number, a metric that pairs questionnaire answers with an appropriate portfolio, helps advisers understand how much risk a client wants, how much they need and how much they have so that “you can prove clients' best interests in a clear and specific way.”

Earlier this year, HiddenLevers, which offers stress testing for a variety of historical and potential situations, added fixed-income modeling so that advisers can analyze how bonds would do in any given scenario. Raj Udeshi, co-founder of HiddenLevers, said risk products, like his, are becoming more of a necessity for advisers in this evolving environment.

Mr. Udeshi said the tool even helped advisers recently over Brexit.

Finametrica, another risk management tool, focuses on psychometrics, and breaks down risk profiling by the risk required to achieve a goal, the risk a client can afford and the level of risk of which the client feels comfortable. Last year it partnered with Rixtrema, a portfolio crash testing program, to pair a risk questionnaire with risk portfolios.

Bryan Beatty, a partner at Egan, Berger and Weiner in Vienna, Va., said his practice uses numerous risk management software. After the firm started using Riskalyze, it inputted its portfolios to find that they weren't scoring as well as they should be. The firm started working with a company called Kwanti to build portfolios with risk in mind. Mr. Beatty said he also uses FI 360 tools to screen exchange-traded funds and mutual funds.

Risk is difficult to understand, though, said Christophe Gauthron, founder and chief executive of Kwanti.

"They want to explain it to clients," Mr. Gauthron said. "It's not easy."

Excellat Consulting's Ms. Ell said advisers need to go a step farther than showing investors what they're invested in.

"The adviser needs to tell clients why they own what they own and explain how that will help them reach whatever financial goals they will have," she said.

Risk management tools are opening up opportunities for advisers to have these sorts of conversations with their clients, said Jonathan Swanburg, an adviser at Tri-Star Advisors in Houston, Texas. These software providers have also simplified the way advisers previously analyzed risk in portfolios, which included reading through reports or estimating funds.

"The technology has made it really easy to break down portfolios, stress test, know what you own," Mr. Swanburg said. "To be able to break it down in clear cut ways."


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 26


Cracking the Code: Making Sense of Alternative Investments

InvestmentNews Research estimates that $150 billion in alternative assets could be added to client portfolios among independent advisers over the next three years. Roughly 85% of all clients are now expressing interest in learning more... Learn more

Accepted for 1 CE Credit by the CFP Board. Pending by Investments & Wealth Institute for 1 credit towards the CIMA® and CPWA® certifications.

Featured video


Why broker-dealers are on a roll

Deputy editor Bob Hordt and senior columnist Bruce Kelly discuss last year's bounce-back for IBDs.

Latest news & opinion

UBS continues to cut loans to recruits, while increasing compensation to brokers

The wirehouse reduced recruitment loans 20% and increased bonus loans 68% in the first quarter.

Things are looking up: IBDs soared in 2017

With revenue up, interest rates rising and regulation easing, IBDs are soaring.

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print