“Back in 2007, we introduced our first toolkit for advisors and advisors, who were, and still are, very happy with that solution.”
Later on, the company evolved into the Fiduciary Focused Toolkit™ because over the years it has had several requests from advisors that have wanted different functionality, including the ability to automate different tasks in their process that were very manual. So if the client has an investment policy statement, how, on a quarterly basis, can they look across their entire book of clients and understand whether there are investments that are violating the policy or underperforming from a fiduciary standard of care? So in addition to the toolkit being built on the AIF and a prudent investment process, it’s built on the proprietary Fi360 Fiduciary Score®.
The Score is really the core of not only the designation, but also the toolkit, and the reason behind its success is that it’s a very easy monitoring and scoring system that individual investors can understand, and from which they can see how certain things might impact their portfolios in the long-run.
“The focus is to enable advisors to allow investors to have successful outcomes.”
The Fi360 Fiduciary Score® scores investments from 0 to 100. It’s much like golf, in that 0 is a perfect score and 100 is the least desirable. So, based on 11 quantitative factors, Fi360 breaks investments down into quartiles, where the top quartile is the most desirable.
The quartiles are then color-coded to make it easy to have a conversation with an individual investor, so 0 to 25 is the top quartile, and 25 to 50 is the second. The third is in between, 51 to 75, and is yellow.
“So if you think about a stoplight, green is go, yellow is caution and red is stop. Those investments that fall into the third quartile, they require further analysis to make sure that they’re suitable for the investor.”
When you get to the fourth quartile (76 and higher), those are the investments that do not meet a fiduciary standard of care, so Fi360 scores those in red.
Thus, the Fiduciary Focused Toolkit™ can be used to create an investment policy statement to not only make sure that both investor and firm understand what the goals are, but to look at the portfolio through a fiduciary lens to make sure that the chosen investments meet the standard of care.
The data is sourced from two places. First, private data collection takes place. Second, Fi360 uses Morningstar investment data.
The company uses Morningstar’s categorizations as well, so there’s different risk and return and manager tenure, as well as a minimum number of assets that are invested in the strategy.
Biggest challenges and problems to focus on
One of the most pertinent topics and trends right now in the industry pertains to the whole idea of the fiduciary duty of care. The robos or other FinTech firms have been focused on many different areas, whether it’s portfolio management, CRM or onboarding—those are all pretty discrete activities, and while you could build software to automate them, it’s harder to make them work as you add more and more capabilities to make sure that everything functions seamlessly.
“The challenge of the fiduciary duty of care is going to be applied in a broader sense.”
That’s a tougher one to translate because that is not a discrete capability like CRM or financial planning, but pertains more to the spirit of the law and really how it impacts individual investors.