While the race to monetize participants by incumbent record keepers and advisors is full on, it’s not obvious that a greater number of wealth advisors will gravitate to 401(k) plans. Though they may have more reasons to pay attention to defined contribution plan opportunities than ever, they are not experiencing fee decline that is causing retirement plan advisors and providers to desperately search for new sources of profitable revenue.
Most wealth advisors and financial advisors will not be hunting for new 401(k) opportunities, leveraging relationships with wealth clients who own or manage a business. Some clients may be forced to start a plan due to a state mandate facilitated by tax credits and group plans, while others who have a plan may not be properly serviced by their payroll provider or fintech record keeper.
Even so, why bother?
Most wealth advisors are doing well enough, focused on implementing AI to be more efficient, delivering advice at scale, and enjoying the benefits of the great wealth transfer. While PEPs may alleviate some work and liability, they are a tool, not a solution. Advisors part of a broker/dealer or RIA aggregator may not want to place clients in their organization’s PEP because it will be more difficult to move if the advisor leaves. Independents with no or limited support may not have access.
Most wealth advisors have little to no ERISA training or experience, nor do they want it, meaning training and education are not a real solution. They just want to be sure that someone they trust will take care of their clients and not disrupt an important relationship. Most have no interest in educating participants, the vast majority of whom are not viable wealth clients, nor do they want to take calls from clients who need help managing their 401(k) or 403(b) plan.
Sounds pretty pessimistic, right? But …
There is unprecedented plan formation due to state mandates with 401(k) plans alone expected to reach 1 million in 2029 up from just over 600,000 in 2021, according to Cerulli. If an important client calls and needs help, can the wealth advisor afford to say no? And if they do, are they risking losing the relationship to an RPA hungry for wealth opportunities?
There are solutions.
RPAs are willing to spend the capital to own the car, hire the people to drive and service it, because they have scale. Next level RPAs might rent, outsourcing much of the work while acting as the driver. Most wealth advisors want Uber—just deliver their client to their destination without much, if any, work or time. The Uber drivers are TPAs, but wealth advisors do not know who to trust with thousands out there, most mom-and-pop shops with limited to no cyber protection, sophisticated technology, never mind AI, and resources.
Home offices have even bigger issues developing a national network of TPAs/Uber drivers that must be constantly monitored with annual due diligence. Record keepers who partner with TPAs, most of them in the small market, could be a solution, but they are beholden to those TPAs that give them business, not the best ones for that advisor. Rather than record keepers recommending a TPA, the TPA should recommend the record keeper.
Some home offices are trying to create and staff their own service desks and, while support is required especially at the point of sale, the cost to service plans is expensive, something most record keepers have realized, turning to TPAs and AI.
Outsourcing ERISA support is easier for wealth advisors than RPAs outsourcing wealth. Though more complicated, DC plans have defined rules and regulations and are rather simple if you have the right partners with less sophisticated clients.
Though data is still hard to get and volatile, fraught with pricy issues and prone to hacking, it is getting better with more third-party tools and services to help wealth advisors mine for attractive wealth or planning clients, if not just IRAs, like iJoin partnering with Penchecks and IRALogix. Managed accounts are a great way to provide advice at scale while embedding private market investments and retirement income, generating additional revenue, and potentially uncovering wealth opportunities. And, of course, there are firms like Pontera that allow a wealth advisor to manage their clients’ DC accounts without becoming the plan advisor.
It’s hard for wealth advisors to ignore the $800 billion rolling out of DC plans, the 121 million accounts and 96 million active participants as well as the $12.2 trillion in DC assets, with half of all wealth not advised and the workplace one of the best places to uncover it. Since 2020, Morgan Stanley has garnered $300 billion in wealth assets from the work place. Wealth advisors with even a few DC plans under management are more profitable than those without.
And while mid-larger plans are unlikely to hire their wealth advisor to manage their DC plan, smaller plans, which most RPAs avoid, will be more likely to hire their trusted financial advisors, especially those with home office support streamlining onboarding and administration through qualified plan partners.
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