DOL's New Fiduciary Ruling Pushing Financial Advisors to Seek Better Technology

DOL's New Fiduciary Ruling Pushing Financial Advisors to Seek Better Technology
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LifeYield

DOL's New Fiduciary Ruling Pushing Financial Advisors to Seek Better Technology

The Department of Labor’s Fiduciary Rule for retirement accounts has taken center stage in the wealth management world, pushing financial advisors to seek out new technologies to help better serve their clients. With more than 10,000 Baby Boomers entering retirement every day, retirement income planning is poised to be significantly improved by this regulatory shift. Unlike generations that came before, many Boomers will be faced with beginning the process of drawing income from their portfolios which commonly count several accounts, between taxable accounts, IRA’s, and 401(k)s.

Moving from a single account world to a multi-account world has created a number of challenges for financial advisors. According to Fran Dietrich, portfolio manager and senior vice president of wealth management at UBS Financial Services in Boston, “to be successful, the advisor has to assume a global viewpoint, managing the asset allocation across the various accounts.”

The other choice, Dietrich explains, “is to manage each account separately and create a unique allocation for every account. The same is true for dealing with the tax consequences and income generation, across the entire portfolio.”

In the past, an Ultra High Net Worth (UHNW) client had access to a team of advisors and accountants, or a family office, that would dedicate a significant amount of man hours in order to accomplish the complex task necessary to build an optimal accumulation and de-accumulation (retirement) strategy. However, the mass affluent clients, the more typical millionaire, could not accomplish all of these tasks with their financial advisors in a cost effective way. Thus, financial advisors need to look at a client’s accounts as a whole, in a whole portfolio, to improve outcomes.

This leads us to the DOL’s Fiduciary Rule, which is due to take effect this April. Before the ruling, the industry had been focused on single accounts, products, and returns. And despite being under threat of repeal from the Trump administration, it appears the spirit of the ruling will live on, pushing the industry to march towards a more responsible, fiduciary-oriented future. This philosophical shift requires the accountability of all financial advice, across multiple accounts, meaning that the advisor is held accountable to recommend investments that are in the best interests of their clients when offering guidance on 401(k) plans, IRAs, or other qualified monies saved for retirement.

According to BlackRock, many advisors are already moving towards such fiduciary practices and are helping clients manage both costs and risks in their portfolios. They encourage advisors to develop strong value propositions to differentiate from others who provide advice and position their practices for future growth.

In researching companies that are best positioned to benefit from the new DOL Fiduciary Rule, we identified LifeYield, an eight year old financial technology company headquartered in Boston, MA. Their software allows advisors to manage multiple accounts in a coordinated way, with better results resulting from managing more of a client’s account, thus positioning advisors to best handle the new rule and added fiduciary responsibilities.

We caught up with Michael Benedek, LifeYield’s Co-founder and President, for his thoughts on where they sit in the marketplace.

“Before starting LifeYield, we saw that advisers weren’t just dealing with clients that had one account, but rather multiple accounts held by multiple people, like spouses. So, we built a tax-smart, multiple account management platform. Ernst & Young did a study on LifeYield and found that if you coordinate the management of multiple accounts, you can minimize taxes and increase a typical client’s income and asset by about 33%,” said Benedek.

Furthermore, the new DOL standards are essentially requiring advisers to give clients a reason to roll over their IRA. Additionally if you're charging advisory fees, you have to continue to show clients the higher level of service you're giving--something Benedek reports that LifeYield’s technology does.

“Every day, every second, our software, monitors all of a client’s accounts and watches for opportunities to increase returns by lowering taxes. At the same time, it’s always making sure that the target allocation is being followed. LifeYield allows advisors to provide their clients with a higher level of service, that previously, only UHNW clients have received. Further, the more accounts a client lets an advisor manage, the more an advisor can minimize taxes, which is clear justification for rolling over a 401(k) and one of the tenets of the new DOL rule,” says Benedek.

Ultimately what the impending changes with the DOL are going to mean for advisors, is increased fiduciary responsibility, which will result in small operational changes. In a world already burdened by overwhelming compliance requirements, technology like LifeYield will likely be welcomed with open arms.

Co-authored with Heidi Dietrich

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