A large broker/dealer putting together a case to leverage the convergence of wealth and retirement for its board to get more resources called looking for ammunition. Their first question was whether this “convergence” is real, something no one is brave or stupid enough to deny these days, with all due respect to those stuck in the 401(k) echo chamber. The real question is who can be successful and how.
Like Mount Everest, convergence is not a mirage, but for most, it might as well be. Some are further along than others, but no one has reached the summit—not even close. Base camp is reserved for those who have access to defined contribution participants and trained and experienced staff with tools to climb—unfortunately, there are no sherpas, as no one has been there yet.
The stark McKinsey report about how record keepers must pivot from product-centric to participant-centric business models applies to retirement advisors as well. Though a touchy subject, fee decline has been dramatic and, though a bit stabilized for providers, continues with minuscule profit margins for large plan market providers and flat fee advisory pricing at what would have been considered ridiculous levels just a few years ago.
Convergence, as well as artificial intelligence, are force multipliers defined as anything that significantly increases the effectiveness of a group or individual, allowing them to achieve greater feats than they could without it. Essentially, it’s about making resources go further and achieving more with less.
The question is not whether advisors, their home offices and providers want a force multiplier—the question is who can survive without it.
With $800 billion leaking out of DC plans annually not likely to slow down, advisors and providers alike need to find better ways of not just creaming the top but also to work with smaller accounts efficiently through tech and third parties—as Henry Ford quipped, sell to the masses and dine with the classes.
Managed accounts, another tool, is not just an easy way to generate revenue quickly with the move to personalization driving it—they offer ways to provide advice at scale, incrementally getting more participant data and engagement with target date funds, a pit stop along the way, not the destination. As prices decrease and data and engagement increases, managed accounts will be the vehicle to deliver guaranteed income. Private markets, augmented by low-cost passive investments to keep fees attractive, will drive revenue for these “new” DC asset managers, promising more alpha or clients.
Joining the hordes at base camp are broker/dealers, well-equipped to help their climbers with retirement and wealth tools but struggling to find the right ones for each group. Only a small percentage of wealth advisors want to be expert RPAs, and just a few RIA aggregators are acquiring them. Education and training are not the solutions for wealth advisors for complex and liability-laden ERISA plans, nor do most know how to mine the plans they manage for wealth or financial planning clients.
They need help, which may come in the form of third-party administrators, just as it did 30 years ago when wealth advisors started noticing the rise of 401(k) plans. The problem is that most of the thousands of TPAs are mom and pop shops with limited tech and cybersecurity skills, never mind AI knowledge, as well as inefficient processing and limited sales support. Creating an in-house resource for broker/dealers means hiring and managing these people with costs rising, something even larger record keepers struggle with, most leaning on TPAs as well.
Some institutional consultants have started to get interested in convergence with firms like NEPC bought by Hightower and Cardinal, and Andco acquired by Mariner, while others like AON are riding PEPs to service smaller plans, eventually leveraging NFP and its RIA Wealthspire to serve participants.
Captrust, which started as an RPA but now generates more revenue from wealth, and Creative Planning, which began as an RIA acquiring Lockton’s retirement group, are leading the climb along with Morgan Stanley, which has realized $300 billion in wealth assets from the workplace, leveraging Vestwell to serve smaller plans. JPMorgan Chase, with 66 million household customers, is leveraging Vestwell to go deeper into the financial lives of its business and consumers.
AI is also a force multiplier. Merit Financial President Kay Lynn Mayhue said at the recent Wealth Management EDGE conference that she mistakenly pulled up a 2024 conference agenda, noticing that there were few, if any, sessions about AI, which proliferate agendas this year. Currently being used to make people more efficient, it has the potential to bring advice at scale to more people.
Access to participants and/or wealth clients who own or manage a business, along with staff and tools, is required to get to base camp, but if these advisory practices do not attempt to scale Mount Everest, they might as well be one of many lotus eaters living delusionally at sea level. Those that try and succeed, with many dying on the way, forced to join forces with stronger climbers that have oxygen in the form of capital, will look down on the rest of us with an elevated view of the world where the air is thinner, requiring an existential metamorphosis.
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