We wonder which Risk Number is aligned with writing a white paper on the DOL’s fiduciary rule so soon after its release.
For 401(k) advisors concerned about the rule’s provisions (rhetorical point), Riskalyze, the company that allows advisors to align each client’s investments with an appropriate “Risk Number,” released a white paper titled, “No Need to Panic: A Roadmap to the DOL’s Final Fiduciary Rule and What It Means for Firms and Advisors.”
“No longer can advisors simply act in a client’s best interest,” said Kyle Van Pelt, Managing Director of Partnerships at Riskalyze, upon the paper’s release. “Now they must be able to prove it.”
While the implementation of the Best Interest Contract Exemption (BICE) will be less cumbersome than originally feared, advisors will still need tools to manage the procurement of BICE forms. The firm notes it will automate the documentation a point-of-contact audit trail at each stage in the client relationship—from education, to investment recommendations, to client reviews.
Firms are now subject to increased legal exposure from breach-of-contract lawsuits when operating under one of several exemptions in the final rule. Compliance Cloud will empower teams to zero in on problems such as missing BICE documentation, mismatched risk objectives, high-risk positions, a high rate of 401(k) rollovers, or hyperactive accounts that may be abusing commission-based compensation.
Autopilot, Riskalyze’s digital advice platform, addresses an industry challenge presented by the DOL rule’s aversion to commission-based compensation. As a result of the rule, many firms will drop smaller, commission-based accounts because their perceived compliance risks outweigh their potential estimated revenue.
“Perhaps the greatest opportunity for advisors lies with the small accounts that will slip through the cracks,” said Aaron Klein, CEO at Riskalyze. “It may seem easier to abandon these accounts than to adapt them to the new regulations, but firms who can transition these smaller accounts onto a next-generation, fee-based digital advice platform will be able to take advantage of a unique opportunity.”
Advisors will leverage digital advice, married with automated asset management, to convert commission-based A-shares into fee-based accounts. The Risk Number on Autopilot will showcase best interest alignment and allow these accounts to be covered under the DOL’s fiduciary standard.
“Advisors and firms will have no time to procrastinate,” said Mike McDaniel, Chief Investment Officer at Riskalyze, “Implementation and enforcement of the DOL’s fiduciary rule will happen quickly. Firms who prepare themselves for DOL compliance will be the ones positioned to turn these industry challenges into opportunities.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
