Carson Group earlier this month gave all of its advisers access to FeeX, a technology service that lets them manage clients’ 401(k) accounts without taking custody of the assets.
The firm is among the latest to sign up for FeeX, a third party that markets itself as a safe and secure way for advisers to allocate assets in retirement accounts, health savings accounts and other accounts in a way that won’t run afoul of regulators.
It’s a compliance-friendly alternative to the common practice of using a wealth client’s own login credentials to directly access a 401(k) to make trades on their behalf, which some industry executives characterize as a gray area at best — and one that others said would get an adviser fired on the spot. FeeX charges its partners an asset-based fee to use the service.
“They see it as a much better alternative,” FeeX co-founder Yoav Zurel said. “All of our partners are heavily regulated … The biggest proponent will be the compliance department.”
The service has been around for more than three years, and FeeX as a company launched nine years ago, Zurel said. Initially, it offered 401(k) participants a way to benchmark their investment options and fees by providing FeeX access. As an investment adviser itself, the company recommended IRA rollovers to a limited number of providers that gave it referral fees. The company’s registration with the SEC ended in 2018.
It was a natural step to extend the service to advisers, Zurel said.
“Consumers asked, ‘I have this data, and now what?’” he said. “It was a very obvious leap from there.”
The services is a "secure, client-permissioned technology layer between the advisor and client's account," he said in an email. "[T]o this day, there are thousands of advisory firms that log into client accounts on a regular basis to trade them. Most firms doing this are following a somewhat standard protocol, including claiming custody and subjecting themselves to surprise audits. FeeX has taken this process and built a SOC2 certified, secure and compliant framework around it so advisors do not need to become cyber security experts and can focus on serving their clients."
FeeX appears to be quickly raking in business from RIAs and other financial services firms.
In addition to Carson Group, Orion Advisor Solutions, Advyzon and Dynamic Advisor Solutions are now FeeX clients. Those firms represent only a slice of FeeX's customers, Zurel said, noting that nondisclosure agreements prevent the company from identifying more.
Customers range from single-person adviser firms and large RIAs to midsize and large broker-dealers, he said.
“I think FeeX has called every single one of our financial professionals and said, ‘If your home office isn’t letting you do this, talk to us,’” Taylor Hammons, head of retirement plans at Kestra Financial, said Wednesday at the InvestmentNews RPA Convergence Broker-Dealer Round Table and Think Tank.
Similarly, Commonwealth Financial Network’s advisers have been getting calls from FeeX, said Karen DiStasio, head of retirement consulting services at the firm.
“They’re hitting all the major [RIAs],” DiStasio said at the RPA event. “It’s a pretty big push.”
Some companies are cautious about the service.
Carson Group has been using FeeX in a soft-launch capacity until recently, when it extended access to all of its advisers. At the end of September, 100 of the firm’s advisers were using FeeX.
“It is a compliance-approved way for our advisers to continue giving advice on what frequently ends up being the client’s biggest [source of] assets,” said Erin Wood, senior vice president of financial planning and advanced solutions at the firm.
FeeX can also benefit advisers from a compliance perspective in light of the Department of Labor’s fiduciary rule and the SEC’s Regulation Best Interest, Wood said. If, for example, the adviser has a clear picture of the fees and available investments in a client’s 401(k), they have much better grounding for recommending an IRA rollover, she noted.
“It’s definitely a win-win for everyone,” she said.
Participants can benefit substantially from an adviser’s management of their 401(k) assets, as default investments like target-date funds might be too conservative in their allocations for many people at or near retirement, Wood said. Additionally, having a clearer view of the available investment options helps advisers provide tax optimization, she said.
As a 401(k) record keeper, Capital Group wants to know more about how FeeX or similar services access participants’ accounts and how they gather information, Mark Dence, national account director at American Funds, said at the RPA event.
“We are aware of it,” he said. “We would proceed with caution.”
An issue could arise, for example, if one adviser serves the 401(k) and another from the same company is requesting account trades on behalf of a participant with whom they have a wealth management relationship, Dence said.
“They’re literally taking control of a client’s account, and we need to understand what is happening,” said Tom Hendricks, vice president of investment products and services at Northwestern Mutual.
But he noted that Northwestern Mutual does not allow advisers to use client’s credentials to access their customers’ 401(k)s.
“If we found out an adviser was going into a client’s account, they would be pretty much fired on the spot,” Hendricks said.
Similarly, Edward Jones, which does not use FeeX, doesn’t want to touch held-away assets, said John Davis, principal of retirement products at the firm.
“Our policy today [is that] unless we custody the assets, we’re not going to provide advice,” Davis said.
Having an adviser oversee 401(k) assets can lead to higher returns for clients and help that adviser retain or win business, said David Goldman, vice president of business development at FeeX.
“The mission of the company has always remained the same … find ways to help the end investor retire with the biggest nest egg possible,” Goldman said. “If your client wants help with their 401(k), you should be able to provide it.”
Some firms allow advisers to access 401(k) accounts directly via their clients’ credentials, but there is not reporting for that, he said. When trades are requested through FeeX’s portal, a report is generated that can be sent to the home office, and the company maintains records of all the transactions, he said.
“A lot of our partners have been audited by regulators — federal and state level,” Zurel said. “The feedback from these regulators was, ‘Finally, we get proper data.’”
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