Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA Edge and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the 5 most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
The November job growth numbers again beat expectations with almost 200,000 new jobs added indicating a thriving economy with relatively low inflation which could equate into a soft landing and stable interest rates.
The numbers are a bit skewed as striking auto workers returned also helping companies that support car manufacturers – education and healthcare led with almost 100,000 new jobs followed by government at 49,000 and hospitality and leisure with 40,000. Interestingly, business services lost 9,000 positions.
Either way, the focus on recruiting and retention remains high among most employers with benefits and retirement plans a key weapon even as the war for talent recedes.
The Washington Department of Financial Institutions is investigating advisors in their state that use Pontera to help them manage held away 401k assets using their login information. Citing the No. American Securities Administrators Assn model rule, there is concern about client’s data security who may be violating their agreement with custodians if they do not get permission. They also cite potential fiduciary breaches by advisors.
The beauty of Pontera, which acts as a cyber shield for advisors, is that they do not need permission of record keepers which might be concerned about data security as well as self-interest in managing the assets themselves. The question is whether they will need to get permission in the future and will Pontera lose clients until they do.
The entire DC industry could face similar issues having to comply with dif state rules. So even if Pontera adheres to SEC data security requirements, could states impose higher levels? And help us all if there is a security breach which is more than likely.
Meanwhile, Pontera just raised another $60 million from ICONIQ Capital increasing their total to $160 m.
According to UCLA Professor Shlomo Benartzi, the DC industry needs to get up to speed quickly with AI because it is improving at a rapid rate increasing accuracy in one example from 60 to 86% with just one upgrade.
While a slow uptake in DC plans, the use of AI in benefits plans is picking up in 3 distinct areas:
- Personal reminders around open enrollment periods
- Leveraging data to help employees make better benefit allocations
- Answering questions
Issues remain about data integrity and security.
It seems like rules based industries like ERISA and investing are prime examples for the use of AI though more likely to enable than replace advisors searching for ways to bring advice at scale to the masses.
If you doubt that state plans are spurring formation of new 401k plans, think again. Gusto, a major payroll provider which partners with fintechs like Guideline and Vestwell, reports that state mandates are greatly increasing not just the creation of 401k plans but also participation rates especially for lower paid workers.
As of July 2022, just 25% of employers with 5+ workers in Colorado offered a retirement plan which leapt to 38% in August 2023, a 52% increase. Neighboring states without a mandate showed no growth.
Enrollment for lower paid workers in existing plans grew from 10-19% pre and post mandate while smaller co’s saw the greatest uptick in plan formation from 19% to 28%.
The question for RPAs and DC providers is whether they can profitably serve these smaller plans which will switch providers or terminate their businesses quicker.
The race to serve the over 70m DC participants without access to a financial advisor leveraging data, fintech and AI is just beginning attracting new entrants like fintechs, wealth advisors and RIA aggregators potentially leaving some current providers and distributors out in the old if they do not adapt.
Who will be the winners, losers and new entrants as record keepers, RPAs and RIAs compete to serve DC participants? Read more in my WealthManagement.com column this week to learn more.
So those were the most important stories from the past week. I listed a few other stories I thought were worth reading covering:
- Hub acquires AFS Retirement led by Alex Asseley
- Pontera raises another $60 million
- CalSavers reports modest growth
- The dirty secret about CITs
- UCLA Professor Benartzi warns DC industry to get up to speed on AI
Please let me know if I missed anything or if you have any comments. Otherwise, I look forward to speaking with you next week on 401kReal Talk.
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