DOL Fiduciary Compliance Part II: The most comprehensive solutions for RIA firms

In part I of this two-part report on tools that help you meet the requirements of the DOL fiduciary rule, I acknowledged that there is a high likelihood that the rule will eventually be diminished or repealed by the incoming Republican leadership in the White House, House and Senate.

But I also wondered whether this can be accomplished in less than two months, given that the rule may not be at the top of the legislative priority list. It’s probable that advisory firms will need to acknowledge their fiduciary status, justify that their rollover recommendations from 401(k) plans to IRAs were made with the client’s best interests in mind and otherwise meet the standards of the full rule for part of the year. After that, the best practice may be to continue complying – or, at least, have a way to show clients that your rollover recommendation really is superior to where they are now.

The first part of the report looked at the new cottage industry of DOL fiduciary compliance tools, which variously proscribed your business process for getting into compliance, comparing fees in the 401(k) portfolio with your fees and the industry standard, comparing the quality of the investments in the current and proposed portfolio, demonstrating that you’re monitoring the quality of those investments, assessing the riskiness of one portfolio versus the other and determining what trades need to be made when dialing down the riskiness to the client’s risk tolerance.

Here in part II, let’s look at a couple of new tools that give you an integrated solution to DOL fiduciary compliance. Are you recommending a superior asset allocation? Are you recommending better investments in the IRA than the client previously owned? Is the IRA’s all-in cost lower than the plan sponsor’s offering, and if not, are you offering more services than the plan sponsor was offering?

RiXtrema: Costs, performance and risk comparisons

Arguably the most comprehensive DOL rule solution available to advisors is the IRA Fiduciary Optimizer, offered by RiXtrema. Company president Daniel Satchkov thinks that there is a lot of ways for planners and advisors to add value by replacing the plans their clients are currently invested in. “According to our estimates,” he says, “401(k) plans, in aggregate, probably waste over $12 billion a year of retirees’ money.” You can find the numbers in a white paper on the RiXtrema website.

The IRA Fiduciary Optimizer is an extension of one of RiXtrema’s legacy programs, called the 401(k) Fiduciary Optimizer, used by advisors who are managing qualified assets. Among other things, the tool pulls data from the 5500 forms that qualified plans file with the Department of Labor, and looks at the underlying funds.

“You would be surprised at the data we’ve been collecting,” Satchkov says. “It’s not unusual to find plans that gouge people. I was looking at a $21 million plan this morning that didn’t bother to negotiate institutional share classes.” Pulling a plan up at random from the RiXtrema database, Satchkov finds that one of its investment options is an “A” share class from a large fund company, with an annual expense ratio of 128 basis points. “This is broad daylight robbery going on,” he mutters, considering that a lower cost, institutional share class is available for the same fund.