The Department of Labor’s delays in making its fiduciary rule effective — in late November, the agency pushed back the effectiveness of key provisions until July 1, 2019 — haven’t stopped vendors from marketing software tools aimed at helping advisors meet obligations if and when those regulations start.
But advisors are taking a wait-and-see-approach to these tools, in case the software ends up getting tweaked once the rule goes into effect.
The new software tools are aimed at helping advisors consider clients’ best interests and show clients that they have done so. Morningstar, Redtail, fi360, and others all have new software tools, for instance, to help advisors evaluate if, based on the best interests standard, they should — or should not — have a client roll over a 401(k) into an individual retirement account.
“We started talking about this well over a year ago,” says Paul D. Ellenbogen, head of global regulatory solutions for Morningstar in Chicago.
By the end of the year, Morningstar expects that 8,500 advisors will have gotten or be gearing up to get log-ins for its recently introduced software tool, called the Best Interests Scorecard.
The Morningstar software identifies trigger events, such as a proposed rollover of a client’s 401(k), when advisors need to heighten their concerns about evaluating a client’s best interests. The software tool then evaluates the investment quality of an advisor’s proposed portfolio selection, the costs associated with moving assets, the risks and the fit of the proposed plan with the client’s needs.
Advisors are only slowly warming to the notion of the Best Interest Scorecard software, Ellenbogen concedes.
Part of their reluctance is likely due to the DoL’s fiduciary rule delays, he says.
Some advisors also articulated concerns that the software would encourage clients to move assets to higher-rated funds.
Other advisors at RIA firms reacted to the software less than enthusiastically, because they said about many of its functions: “We are already doing this,” Ellenbogen says.
Stephen Scott, a CFP at Abacus Planning Group in Columbia, South Carolina, puts himself in the camp of advisors who are taking a wait-and-see approach about Morningstar’s and other companies’ new software tools.
He expects software products that his firm already uses will be amended by the providers if and when the new DoL rules become effective.
“We looked into them briefly,” Scott says about the new DoL-rule-specific software, “But we are going to rely on our existing providers of our portfolio software to some of the legwork until this all gets all worked out.”
In the long run, though, Scott expects to use some kind of software tools to verify and show his compliance with the DoL rule, saying all firms will be subject to them in some way.
Warren Terry, head of the financial advisors platform, innovation and strategy at Wells Fargo Advisors in St. Louis, agrees that the best-interest standard will be the one that all clients will and should expect advisors to follow, regardless of how long the DoL takes to finalize the fiduciary rule.
He is keeping a watchful eye on what software vendors are offering.
But, Terry says: “A new technology will not solve this. It is going to be necessary to take a holistic approach to make sure that on an ongoing basis that we have high impact, highly reviewed and regularly revisited financial planning. That’s going to take a lot of work.”
This story is part of 30-30 series is on how technology is changing your practice.
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