One company is hoping technology will make it easier for advisers to determine if a retirement plan rollover meets the fiduciary standard.
CapitalRock is expanding the functionality of its RightBRIDGE Product Profiler, which analyzes 401(k) plans to determine whether a rollover would be in a client's best interest, to cover all types of retirement plans, including 403(b)s, IRAs and Roth IRAs, defined benefit plans and annuities.
Brian Hendricks, CapitalRock's vice president of operations, said the product is already in use by 35,000 advisers at more than a dozen broker-dealers and many requested CapitalRock include retirement plans beyond 401(k)s.
Demand increased after portions of the Department of Labor's fiduciary rule took effect, including the impartial conduct standard that requires advisers to analyze and document the rollover process.
"Advisers have been extremely frustrated with the amount of analysis and depth of paperwork they have to do for even the small things, and then at the end of the day compliance says they can't even do [the rollover]," Mr. Hendricks told InvestmentNews.
The CapitalRock profiler handles that initial heavy lifting with a questionnaire that considers quantitative information, like fees, as well as qualitative answers, such as the client's need for advice or income guarantees. Using a rules-based system, an algorithm scores the potential rollover using a traffic light system – yellow or green means advisers should proceed; a red light means the adviser should not continue.
While home offices can tweak the rules, CapitalRock provides a baseline of suitability to prevent advisers from approving every possible rollover opportunity, Mr. Hendricks said. For example, if a client is still employed at the company providing the 401(k), the company offers a 50 percent match and the client indicates satisfaction with the investment, the adviser would get the red light.
CapitalRock also provides audit documents to firms for oversight on how advisers are using the product.
"We can do trends and analysis to ensure an adviser isn't always clicking questions in a certain way to get the answer they want," Mr. Hendricks said.
If an adviser gets the green light, CapitalRock's technology can suggest specific retirement accounts or annuities that would be suitable for the client. Paperwork is automatically generated and filled with text that explains exactly why a rollover was considered an option, and why certain products or investments were suggested.
Though CapitalRock traditionally provided analytics to help advisers cross-sell annuities, the profiler determines if an annuity is appropriate for a client alongside other investment vehicles, Mr. Hendricks said.
The algorithm "definitely does not skew to an annuity," he said.
Bill Winterberg, founder and president of adviser technology consulting firm FPPad, said it makes sense for a technology company focused on annuities to pivot towards non-insurance investments. Annuities have fallen to their lowest point in more than a decade, and the growing advisory market prefers the types of accounts that CapitalRock is adding to its product.
The fiduciary rule has helped some fintech firm sales take off.
For instance, Fidelity Investments has said it plans to incorporate CapitalRock's product recommendation technology into its eMoney Advisor financial planning platform, and RiXtrema has introduced a tool to help advisers compare rollover costs. Also, Riskalyze's Autopilot platform now includes "one-click fiduciary technology" for advisers to ensure investments meet a client's risk tolerance and other best-interest parameters.
Fi360's chief product and strategy officer, John Faustino, said his company is working on a similar framework to help firms with rollover decisions, but that the technology isn't high on the firm's priorities.
"Our focus is on being adviser enabling and helping advisers make decisions, as opposed to being overly prescriptive," Mr. Faustino said. "There's a science, but also an art, in assessing the best options for a given client… We want to help advisers outline tradeoffs and have conversations with clients that create shared understandings and trust as decisions are made."
Mr. Winterberg said he's not at all surprised that technology vendors continue to move into fiduciary compliance space.
"It's a hard problem for many advisers," Mr. Winterberg said. "It's really difficult to track down everything that the client owns. It's a high barrier, especially if the adviser is now subject to a pretty stringent and enforceable fiduciary standard."