Mitchell Starr, president of retirement and wealth management in South Florida for Hub International, is among the first movers in what some analysts predict will be a massive convergence of retirement plan assets and wealth management.
He started out managing 401(k) plans through individual wealth clients with small businesses, he said, speaking at Wealth Management EDGE, held at The Boca Raton resort in Boca Raton, Fla., last week. Eventually, he built a team to work exclusively with 401(k) plans, which in turn has created more wealth opportunities.
As a case in point, when Starr told a client he was speaking on a panel about the convergence of retirement to wealth, that client reminded him “that’s exactly how we met.”
“He was the CFO and an owner of a large company, and when he ended up getting bought out, we got all the assets (under management),” Starr said. “(Advising on retirement plans) is a great way to position yourself to pick up that private wealth.”
In addition, Starr said, for many people, their 401(k) is their largest source of savings, and “at some point they’re going to change jobs or retire. There’s nobody better positioned to capture those assets than if you’re already in there and you have a built-in relationship.”
Panel moderator Fred Barstein, founder and CEO of The Retirement Advisor University, The Plan Sponsor University and a contributor to WealthManagement.com, said the convergence of retirement assets and individual wealth management is still in its early days. However, market forces are speeding up the opportunity and showing “real numbers,” such as Morgan Stanley reporting that $300 billion transitioned from its workplace savings to its wealth platform since 2020.
As of the end of 2024, there were an estimated 121 million accounts in defined contribution plans representing $12.5 trillion in assets, and another $17 trillion in individual retirement accounts, according to the Investment Company Institute. Meanwhile, retirement plan state mandates and federal incentives will help push the plan count from about 650,000 to over a million by 2029, according to Cerulli Associates.
Barstein said roughly 12,000 financial advisors have more assets in workplace retirement plans than in individual wealth management. Since that type of advice is often a low-margin business, those advisors are “racing to wealth.”
“They’re looking to leverage the relationships that they have with the tens of thousands, and in the case of a firm like Hub, the millions of participants that they can cross-sell,” he said.
Meanwhile, wealth-focused advisors are “less enthusiastic” about taking on 401(k) plans, partly due to heavier regulation for those plans under the Employee Retirement Income Security Act, Barstein noted. However, if those advisors pass on 401(k) management for business owners, that person may dislodge them in working with high-net-worth clients within the plans.
Eric Phillips, head of advisor relationships at Betterment, said advisors should go on the offensive for these clients. Betterment seeks to be an advisor’s wealth management custodial platform and their 401(k) plan manager.
“We do see quite a few of our wealth advisors that leverage our custody platform using our recordkeeping platform as well and taking care of those business owner clients,” Phillips said.
However, the firm has not seen many advisors, such as Starr, build a full 401(k) business to use as a wealth channel.
“We’re waiting to see more of what (Starr was) able to do and create the flywheel for their business and actually make it a meaningful portion to grow moving forward and rebuild on the wealth side,” he said.
Hub’s Starr said it’s important to build a team of knowledgeable people. Serving 401(k) plans requires knowledge about Safe Harbor rules and legislative changes. It also requires regularly offering employees financial wellness and planning to help them save, and being a known entity for potential wealth management opportunities.
Barstein called setting up for the convergence “a long-term game,” comparing running a 401(k) plan business to owning a car versus renting an Uber.
As an example of that long-term play, Starr told the story of a client whose 401(k) plan they ran 25 years ago, then lost to one of the business owners. About 10 years ago, however, private equity bought 80% of the firm, dropping over $100 million in cash into the firm’s retirement plan.
“The next thing you knew, they realized that they needed somebody who really knew what they were doing,” Starr said. “The CEO had known that we had morphed our practice into a retirement plan machine, and I got a phone call, and we were in a very competitive situation, but after about four months and a lot of meetings, we got that plan.”
Along with the plan, Starr inherited the point of contact position for “a lot of wealthy employees that needed somebody that they could trust with their assets when they rolled out of the plan. We’ve captured a tremendous amount of assets from that.”
Betterment’s Phillips said just managing the plan isn’t enough to convert wealthy clients. It’s crucial for advisors to create a communication plan with participants.
“What a lot of retirement advisors get wrong is they only deal with the plan sponsor and that investment committee or retirement committee,” he said. “They don’t talk to anybody else … how do you expect to capture that wealth market if they don’t even know who you are to begin with?”
Phillips said the good advisory firms create brand and name recognition among participants through education sessions and on-site visits. They also leverage technology to create and send newsletters and other touchpoints.
“There are a lot of easier buttons you can use to manage the bottom half of those participants that probably aren’t going to be a great wealth client for you in the long term,” he said.
Jobs working with 401(k) participants may be a good fit for young employees who want to become wealth managers, Starr said.
“It’s very hard to bring in a young junior advisor on the private wealth side when they don’t have a whole lot of knowledge,” he said. “But if you can take that same young advisor and plug them into a 401(k) team, they can do one-on-ones with rank-and-file employees after we do an enrollment meeting.”
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