IRAFiduciaryOptimizer
Simplicity of Workflow & Elegance in Presentation
IRAFiduciaryOptimizer is a solution that facilitates the creation of reports
that prove that a rollover is in the investor’s best interest. It uses various
quantitative measures such as fees, backtest performance, risk-adjusted returns,
portfolio risk vs. risk tolerance, as well as qualitative measures such as what
additional services are provided by the adviser vs. the current 401(k) portfolio.
The report is very straightforward for adviser to create, yet it gives a complete
holistic picture of investor’s best interest.
The uniqueness of the IRAFO lies not only in the quantitative measures
that it employs, but in the way that the adviser’s workflow is supported from
beginning to end.
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Loading Retirement Portfolio
In the beginning to load prospects’ 401(k) portfolio we offer streamlined data aggregation from virtually any
retirement platform, which brings this previously hard-to-obtain data into advisers workflow with only a few clicks. Exhibit
1 and 2 show how user can search for their retirement plan account and simply enter username and password to get their
portfolio into IRAFiduciaryOptimizer with just a couple of clicks
Exhibit 1 – User searches for their retirement provider (e.g. Paychex)
Exhibit 2 – User enters username and password to pull account data into IRAFiduciaryOptimizer
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Retirement Plan Admin Fees Required
Next, in order to calculate the best interest report, an adviser needs to enter out-of-pocket fees that their investor
currently pays in a 401(k) portfolio. Without those fees, the comparison cannot be complete and DOL has repeatedly stated
it would not be valid. A typical problem faced by advisers is that despite the fact that plan sponsors are legally obligated
to disclose this information to participants, they may drag their feet and investors may not show enough persistence in
obtaining the data. So what is the adviser to do if a prospect, despite an adviser’s best efforts, simply does not provide this
data? We have sought and made available in the IRAFiduciaryOptimizer a whole database of retirement plan fees covering
over a million plans in United States. The adviser simply types in a name of the plan and the data is populated by the
software. The admin fee data in IRAFiduciaryOptimizer comes from our partner Larkspur Data, a leader in retirement plan
data.
Exhibit 3 – User searches for retirement plan (e.g. Dupont) to bring in admin fee and red flag data
This graph also shows a section of the best interest document with Total Fee and Backtests comparison for initial
portfolio vs. proposed one.
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Retirement Plan Red Flags For Best Interest Documentation
In addition to the admin fee database, we have also made available a database of retirement plan red flags provided
by Larkspur. It will flag things such as low participation rate, poor performance or lack of proper documentation within a
plan. This data is crucial to helping an adviser establish the case for investor’s best interest in a rollover. In Exhibit 4 we
are showing a sample plan that has four red flags.
Exhibit 4 – This sample retirement plan has four red flags
This sample plan is missing a Qualified Default Investment Alternative and Automatic Enrollment. Insufficient
Fidelity Bond - the basic rule according to ERISA/DOL regulations is that the minimum bond must be equal to 10% of
plan assets up to a maximum bond of $500,000 (but not less than $1,000 or more than $1,000,000). These types of problems
may indicate mismanagement of the retirement plan, which is clearly important for determining whether rollover is in the
best interest of the investor.
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Defending Fee Reasonableness
Next comes another complex piece of the puzzle that we have solved for our clients in the IRAFO. The DOL Fiduciary
Rule can be viewed as ERISA rules encompassing the rest of the retirement assets and in the ERISA world there is a
concept that long existed – called Fee Reasonableness. Though somewhat vague, it is critical to establishing a prudent
process for the adviser. We have included RiXtrema’s proprietary database called FeeComp in order to help advisers create
various benchmarks from fees charged by thousands of advisers available in FeeComp.
Exhibit 5 – Section of best interest report with fee reasonableness comparison and more
Exhibit 5 shows that the Advisory Fee in this rollover is 1%, whereas the benchmark fee for similar size portfolio and
services is .91%. The deviation is large, but advisor needs to address and justify in the comments section. This screenshot
also shows that a retirement plan admin fee is 1.43% vs the average of .51% for a similar plan, which is a serious problem
for a retiree.
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Prevent Fiduciary Breaches
Finally, the admin portal makes it really easy for the organization to stay on top of best interest report on all levels.
The IRAFO Admin Portal stores every report ever created in a highly secure, encrypted system. Compliance team members
can find and pull up any report in a matter of seconds. On top of that, all data that was populated within the reports is
available for the admin to filter on, search through. Admin can set up alerts to see if there is something going on that might
warrant a second look (for example, some adviser created a report where total fees were way above the relevant benchmark,
or risk deviated from risk tolerance too much etc.). This enables the organization to be proactive, rather than wait to solve
problems. One of the most difficult aspects of the DOL Rule is that enables litigation in state courts, which is very easy to
bring, so it is imperative to have a prudent process, to prevent breaches and to have every data point at your fingertips.
Exhibit 6 below shows a sample picture of the Admin Portal. All data items from all rollover documents are indexed and
available for search, setting up of alerts. Admin Portal is highly customizable with ability to create multiple admin
hierarchies, custom grouping (e.g. by custom region/team), set up custom alerts (e.g. fees deviation from the benchmark or
patterns of behavior by advisor such as changing the report values after it was created).
Admin Portal provides a trail of documentation, as it stores not only the latest version of the best interest report, but
also stores every iteration of every document for an audit by the compliance team.
Exhibit 6 – Sample Admin Portal with numbers from all best interest reports ever created by advisors within the firm
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