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Digital Wealth Leaders Celebrate Fiduciary Rule

While much of the wealth management industry cautiously mulled over the potential impact of the fiduciary rule, digital-first firms were quick to celebrate.

Sitting on the very panel in Washington as the rule was dissected was Christopher Jones, chief investment officer at Financial Engines. The moment in history wasn't lost on him.

"Today was a pretty momentous occasion in financial services," Jones says. "I am excited about the impact this will have on the industry in the longer term, such as curbing some of the consumer-unfriendly practices that have existed for years."

Digital advice providers, financial planning software firms and digital service providers largely voiced their support on social media and on their websites for the Department of Labor's rule.

“This is a great day for investors across America," says Riskalyze CEO Aaron Klein, who was busy tweeting his support for the rule and showing how his firm would be helping clients respond to it. "The suitability standard is gone, replaced by a fiduciary duty to do right by our clients. That’s a great achievement for our industry.”

Rob Foregger, co-founder of Next Capital, says the Labor Department "made very sensible amendments to the proposed rule. The final result strikes the right balance."

"The new DoL fiduciary rule is a major step forward for the modernization of the $17 trillion retirement industry -- and perhaps the largest overhaul to the investment management industry in nearly three decades," he added. "The DoL went to great lengths to integrate the productive feedback from the financial industry, while ensuring that a true fiduciary standard of care was enacted." 


Among robo advisors there was added incentive for the support -- an industry expectation that they will be able to win smaller retirement accounts deemed not cost efficient to keep or a liability due to the new regulations. The leading independent robo, Betterment, launched its 401(k) platform in January.

"We’re optimistic about the DoL’s rule-making and what it represents," Betterment CEO Jon Stein says. "We built Betterment as an alternative to the conflicted, sales-driven business models that previously dominated the market for retirement advice."

Jones says his firm's support for the rule was based on a model of serving client's best interests.

"Our support for the rule was never really about any business advantage we thought it would provide," he says, predicting further digital advice provider acquisitions as well as divestments of businesses.

"It's not easy to build a brand and an established, profitable business in this space," he adds.


In the wake of the rule, digital advice providers discussed how to allay concerns about their ability to meet fiduciary obligations, most recently raised by one of the nation's leading regulators of financial services, the Massachusetts Securities Division.

Read more: Key Regulator Doubts Robos Can Be Fiduciaries

Personal Capital CEO Bill Harris says the rule will prompt providers to adopt the hybrid robo model that his firm already offers.

"I predict that it will take an upward of three years for any traditional financial institution, or robo advisor, to change their business models enough to be able to truly know their customers and put consumers first," Harris says. "People should be relying on both account aggregation and live conversation -- the blend of technology, coupled with human understanding from trained advisors. Anything else is simply not good enough."

Min Zhang, CEO of Totum Wealth, notes that when an advisor helps the client understand the tradeoffs between best interest contract exemptions and fee-based advice, "it shouldn’t just be about the fees visible to the client, but should compare net returns on all fees."

Zhang also recommends conducting comprehensive know-your-client research with an approach that better engages the client and does not rely solely on automated questionnaires. "While conforming to the new rule looks daunting, it’s not rocket science," she says. 

Financial Engines' Jones says not all digital advice providers are the same, pointing to how his firm's digital advice platform has gone through multiple rounds of evolution since 2006.

"There is absolutely no reason why digital advice cannot be a fiduciary," Jones says. 

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