Monday, November 21, 2016


On November 11, 2016, just three days after the shock of the U.S. Presidential Election results were settling in, I had the opportunity to discuss with Daniel Satchkov, president of RiXtrema, the future of the DOL fiduciary rule and possible outcomes for the financial services industry. Click here to listen to the audio conversation.

A transcript of the interview is posted below.

MARIE SWIFT: Hello and welcome to Best Practices in the Financial Services Industry. This is your host, Marie Swift. I'm joined today by Daniel Satchkov. Daniel is the President of RiXtrema, a company that is known for providing DOL fiduciary software solutions to the financial services world. Daniel, welcome.

DANIEL SATCHKOV: Thank you, Marie.

SWIFT: Here we are three days after the Presidential election and all the things that are happening in the US. There is a lot of speculation about the DOL fiduciary rule. What do you think the election means for the DOL fiduciary rule?

Daniel Satchkov of RiXtremaSATCHKOV: That's a $100 million dollar question actually. Probably a few billion dollar question because so much spending has already been done around the rule and obviously we all know that one of Trump’s advisors, I don't know if he has an official role of an advisor, but the Head of SkyBridge Capital, Anthony Scaramucci, has stated he "hopes" that Trump will repeal or remove that rule completely. If you do a Google search you find a lot of articles on the fact that the DOL rule is likely going to be gutted or totally finished under the Trump administration. Now my opinion, and this is actually very close to a very good column that was written by Bob Powell, I think it was on, I do not think that the DOL fiduciary rule is finished under President Trump. There are many reasons.

[Click here to read Robert Powell’s excellent article on MarketWatch: The Fiduciary Rule Won't Change Under President Trump]

First, Trump himself has never stated any opposition to the DOL fiduciary rule. He talked about Obamacare a lot. But he hasn't talked about the DOL fiduciary rule and in fact today he announced his plan for his first 100 days the office – his first priorities. Among those priorities we see building “the wall” that he talked about during the campaign; we see repealing Dodd-Frank which I didn't think would be one of his top priorities right off the bat, but apparently it is. Apparently he's going to repeal Dodd-Frank. This is really important. There is no mention of the DOL rule right there and the DOL rule is actually a law. It's been a law since June of 2016, and I believe and it fully goes into effect April 2017. There is not enough time to stop it from going to effect. Does Trump really want to spend his political capital to remove that law when he is trying to do so many other things such as removing Obamacare and repealing Dodd-Frank? I really don't think he can fight all of those battles. And on top of that, he's positioned himself as defender of the little guy, whether it's true or not, and for him to take so many steps that are favorable to the large banks and large Wall Street institutions in the eyes of his voters, well, I think it would be suicide to repeal Dodd-Frank and at the same time kill or gut DOL fiduciary rule. I'm more inclined to believe what Bob Powell wrote, that he may use it as a bargaining chip, but it doesn't look at all like that's one of his main targets.


SWIFT: These are very challenging times for the financial services industry. We had a lot of challenges before the Trump election and the leadership changes in Congress. So, how are you seeing things from where you sit at RiXtrema? I know you've been an observer and a participant in the industry for a long time. How do these challenges land for you?

SATCHKOV: Well I think one of the biggest challenges, if not the biggest of the whole industry, is trust. This trust was undermined following the 2008 crisis and it really hasn't returned. I think the DOL fiduciary rule is actually a net-positive for the industry. In general I myself am against regulation. I think it has to be proven to be necessary. But in this case, the DOL fiduciary rule actually helps the financial sector by establishing more trust. I think this trust starts with transparent communication. That is a huge issue in the industry. How do we communicate the fees to investors? How do we communicate how they actually get charged? Right now, it is very confusing for consumers. The types of disclosures they get – and the type of advice they get – can be very conflicted, very confusing, and ultimately quite unfair.

We just did a major research study where RiXtrema studied 9,000 retirement plans in the US. We actually took their holdings and ran some sophisticated quantitative models to see if those plan line ups were too expensive. We can use quantitative models to actually create a similarly line up from less expensive funds. What we found is just basic algorithms and basic transparency only the retirement plan industry, I'm not talking about IRAs, that part of the industry could save well in excess $12 billion per year for retirees.

The fact is, there so much money wasted in the industry – this means that there is not enough transparency in what is really going on. I think that's the main issue facing the financial sector and firms individually. I think the DOL rule actually helps in that regard. It sets the standard for transparency. It sets some fairly straight-forward rules for disclosing fees, for disclosing conflicts of interest within the best interest contract exemption, and so on and so forth.

In my worldview, the DOL rule is not a problem for the sector. The problem is lack of trust and unclear communication and the DOL rule is kind of an attempt to solve that.

SWIFT: So how can advisors and financial services firms address this problem? How do they build that trust and transparency?

SATCHKOV: I think in today's day-and-age, it all starts with technology – and technology has gotten less and less expensive. So without spending huge amounts of money, firms should think about how they present their data. The time of long winded confusing disclosures are gone. Now it's like a prisoner’s dilemma. Nobody is going to do it first because it's now profitable to do it but because of the fiduciary rule. I think it's a great push in that direction to bring everyone to a level playing field and start disclosing things in a clear matter. It lays the groundwork. And a lot of technology firms, ours included, are working to provide solutions. We at RiXtrema actually have a solution that has been already used by investors – it provides simple and clear reporting, something highly visual, something that isn't confusing, that doesn't have a lot of text or a lot of data tables. Our solution presents something that is like an app, something that people can read and understand about what they are actually spending in their retirement accounts.

This is what advisors and financial services firms should be doing around the DOL rule. It's documenting the client's best interest – that's a requirement in any rollover situation. The requirements for disclosure in the 401(k) space should be improved but ultimately with the DOL fiduciary rule it requires the firm document the best interest of the investor under a rollover. It also requires advisors to stick to reasonable fees. What does “reasonable” mean? Advisors or financial institutions should really think about data and benchmarking. We live in an age of big data. So you can gather large data sets and compare yourself to others and have adequate benchmarking to show that you are actually doing good things in terms of portfolio construction and that you are charging reasonable fees.


SWIFT: Can you talk a little bit about the solutions that you have created and developed at RiXtrema?

SATCHKOV: We released a tool just over three weeks ago called IRAFiduciaryOptimizer. That tool does a number of things and it's based on some of the quantitatiive methodology we've built for large institutions that we've been doing for years. We build customized stress-testing and risk models, but it also has a lot of new components geared towards this new age of transparency. It satisfies DOL fiduciary rule requirements in that it creates clear, simple, visual reports to document the best interest of the investor in a rollover transaction or in any kind of transaction really. It also uses some of the benchmarking data that we've curated.

We've also used some technology breakthroughs to gather a database of advisory fees based on the Form ADV that advisors file with the SEC. There is something called Part 2 to that Form ADV where there is a lot of textural information. Again, that disclosure is not as good as it should be but we've used some advanced technology to extract the necessary information out of it to help financial institutions and advisors measure the reasonableness of their fees, benchmark, and so on. So beyond documenting client's best interest, the defending reasonable fees are a big aspect of the IRAFiduciaryOptimizer.

The third important thing we are doing is building a solution that is modular and integrated with other types of solutions. That's also a challenge in the industry right now. Technology is developing very quickly but what’s needed are solutions that are modular and open based around API. We built IRAFiduciaryOptimizer with that in mind, and we are working with some large organizations right now to actually embed it in a customized manner into their workflow. Pretty much you can think of these different applications like pieces of a puzzle that you can just put together. The puzzle is in gathering information and data in different ways depending on how you want to put it together – if that makes sense.


SWIFT:  It does make sense. I know you are always writing and speaking in the industry and I'm fascinated to know your thoughts on this Daniel. Don't you have some webinars and videos that would be helpful for our listeners? Could you talk a little bit about resources that you offer?

SATCHKOV:  Yes, on our website we have a ton of videos. It's We are actually preparing a number of webinars, unfortunately I don't have dates for you today but we hope to release dates soon.

One webinar I’d like to spotlight: We are preparing a webinar with a partnership with a company called Larkspur Data. This is a very important piece of the IRAFiduciaryOptimizer DOL software solution. Larkspur Data has been around for a longtime and they run over a million retirement plans, pretty much every plan in the US. They have fee data and other various data sets that advisors can use when they run reports for investors. Quite frequently investors cannot really get the adequate disclosure from their planned sponsor about the fees that they pay. Now under the DOL fiduciary rule they are supposed to get it. The plan sponsor has that obligation but frequently the disclosure doesn't come.

The DOL recently released an FAQ where they explicitly said if advisors have proven they were trying to get this data and couldn't, then they can use the other types of data from benchmarking or data curated from reporting. So the Larkspur database is a huge value added to our system where advisors, let's say the prospect comes to them from a retirement plan XYZ, if they don't have the fee data through Larkspur already, they can just pull that into our application with just a couple of clicks. So we are going to be doing a webinar on that right after Thanksgiving.

SWIFT: As always Daniel I really appreciate your comments today. Listeners, you can learn more about Daniel and the good work they are doing at RiXtrema at Thanks again and have a great day.

SATCHKOV: Thanks for having me, as always, Marie.