Many of the largest 401(k) record keepers today have put together participant support services that include comprehensive financial planning complete with wealth management services.
And coincidently, many of the largest and most progressive retirement plan advisors have purchased financial planning and wealth management firms to complement their existing participant plan services.
What is going on here?
In short … it’s a race for who is going to control the financial relationship with the 401(k) participant now and into retirement.
The record keepers have the advantage of data. They know the participant’s name, age, wage, family makeup, living address, email address, phone number, 401(k) account balance, contribution amount, investment risk tolerance, beneficiaries … and the list is growing.
The top progressive RPAs have strong relationships with the plan sponsor who hired them for fiduciary protection. In addition, they have the advantage of in-person access to the participant. Many are building their own app or data repository to collect the same personal data, can deliver a foundational financial plan annually for every participant, and are hiring or buying CFPs to staff call centers and provide worksite financial planning for all participants desiring a comprehensive financial analysis.
Both contenders understand the typical American worker already gets the vast majority of their financial needs taken care of at work by their employer’s compensation and benefits programs. Participants are used to both being educated there, and purchasing financial services and products at work through payroll reduction.
And both 401(k) record keepers and RPAs know the pandemic exposed the poor financial wellbeing of the American worker who has massive personal debt, no idea what their maximum debt load should be, has no emergency savings and nonexistent budgeting skills. They desperately need help, yet the wealth management industry often has no interest in serving them, referring to them as “underserved.” And in the current economic environment, plan sponsors are looking for solutions to hire and retain their workforce!
Where does that leave the typical wealth management firm that tends to focus on the high net worth and the HENRYs (high earners not rich yet)?
The plan sponsor has, in essence, endorsed the record keeper or RPA for financial planning and wealth management services to their employees. And you can plan that the record keepers and RPAs will come in with bargain volume discount pricing (and they will make money at that). Many plan sponsors will even pay for some or all the cost.
Will the C-suite and upper management continue to pay $2,500 for a comprehensive financial plan, and a 100-basis point investment advisory fee when they can get it substantially cheaper at work?
At the very least, this is potentially going to push financial planning and wealth management fees down.
Is there an opportunity for collaboration here?
While you’re deliberating that, 401(k) record keepers and top RPAs are hiring more CFPs and are collecting thousands of new participants to serve, and this includes the C-suite and upper management.