DOL fiduciary rule is spurring technology adoption and innovation: Cerulli report

The Department of Labor’s fiduciary rule, which will require advisers act in their clients’ best interests on retirement accounts, is pushing technology providers to innovate and financial services firms to adopt those compliant platforms, according to a new report.

Some firms and advisers may turn to existing technology, such as robo-advisers, to meet the requirements of the DOL rule. Others may choose new features or products that are offered as a result of the impending legislation. The Cerulli Associates report predicts the Department of Labor’s fiduciary standard will prompt both sides of the industry — financial firms and technology vendors — to make strategic moves in response to the rule.

Ultimately, advisers may not have much of a choice when it comes to implementing new technologies.

“In this case, the return on investment isn’t just about revenue, it is about taking in regulatory risk,” said Bing Waldert, managing director of research at Cerulli. “It may be that they don’t have a choice. They can resign these [small] accounts, which is fairly unappealing and non-consumer friendly.”

FolioDynamix, a wealth management technology provider that offers advisers services such as portfolio accounting and performance analysis, is looking at the issue of small accounts in particular.

Steve Dunlap, president of FolioDynamix, said the company is working on helping advisers manage smaller accounts, which has been a major concern for financial services firms that say such accounts may end up being too costly under the DOL rule. Right now, the company is aiming to provide advisers with technology to serve high-quality advice to accounts as small as $10,000. The company is also offering a “DOL Risk Exposure Assessment,” in which analysts will assess a firm’s retirement business process and suggest ways in which it can comply with the new regulation by deadline.

“The trick to do that is technology,” Mr. Dunlap said. “With accounts smaller than $10,000, we will try to figure out how we can get there but it is going to be a challenge for the industry.”

Institutional robo-advisers may be another solution for small accounts.

The Cerulli research report cited asset managers BlackRock Inc. and Invesco, which acquired automated investment platforms FutureAdvisor and Jemstep, respectively. These companies now are offering the technology as a business-to-business model to broker-dealers and other firms. The first deal Blackrock struck for FutureAdvisor was with BBVA Compass, followed by another deal with RBC.

Charles Schwab & Co. is reportedly planning to license its robo, Schwab Intelligent Portfolios, to broker-dealers as well, according to an AdvisorHub story. Schwab did not respond for comment.

“There is a lot of emotion around the idea of robo-advisers,” Mr. Waldert said. “The DOL is a fairly hot topic right now, but if you think of how advisers segment their client base and work with beneficiaries and NextGen investors, we think digital advice can play a role here.”

Risk assessment is another of the many technology features advisers will need to incorporate into their practices as they brace for the DOL, and vendors are well aware of it.

Riskalyze Inc., a risk assessment technology provider for advisers, added a new feature to its platform on Wednesday that lets advisers see the accumulation and distribution stages of annuities and insurance policies in a client’s portfolio. The rollout is a direct response to the upcoming DOL fiduciary rule.

Cetera Financial Group, an independent broker-dealer network, announced Tuesday that it had finished working on a retirement plan platform to assist advisers with adviser education, marketing, prospecting, closing business and service and retention.

RetireUp, a retirement income planning software provider, released a new feature last month that instantly analyzes fixed-indexed annuity products in a client’s retirement plans.

FinMason Inc., a financial technology firm, is rolling out a risk tolerance assessment platform for advisers and financial firms. The tool, expected by the end of the year, will run clients through a risk exercise as opposed to a questionnaire.

“People will have to get more collaborative with clients and prospective clients,” said Kendrick Wakeman, chief executive and founder of FinMason. “The days of coming in and establishing credentials, putting it through an opaque black box and at the end saying, ‘Here is a pie chart, it is the best one for you,’ those days are gone.”

An earlier version of this story stated BlackRock’s first deal was with RBC. It was in fact with BBVA Compass.