Skip navigation
office-workers.jpg Helen King/The Image Bank/Getty Images

401(k) Participants Held Back by Industry Competition, Consolidation, Conflicts of Interest

Fee compression, unnecessary friction and antiquated technology are inhibiting convergence.

No doubt the challenges of providing financial planning at scale to the 97% of defined contribution participants without a traditional advisor is daunting. Many challenges exist like lack of data and limited engagement but the industry itself creates many of the barriers that most providers and advisors are unwilling, not unable, to solve.

Along with helping the underserved participants or the convergence of wealth, retirement and benefits at work, access to retirement plans by smaller entities and retirement income are the DC industry’s biggest challenges and opportunities. The business models and technology of most providers and advisors are not designed to solve these problems. But some of these barriers are self-created and eminently solvable.

Advisors and providers partner when it comes to selling and serving the plan but can compete over participant services. Some record keepers like Fidelity are transparent about their intentions—others want to have it both ways. Rather than partnering or competing with clear rules which are in the best interests of the participants, each party looks at what is best for them.

Most advisors cannot and do not want to service smaller accounts. Many record keepers can offer relatively inexpensive financial wellness programs with costs spread among millions of participants. Yet many advisor groups are creating their own programs partly to generate additional revenue. Advisors do not have an inherent right to serve even the desirable participants—as fiduciaries, shouldn’t they recommend what is in the individual’s best interest?

Which leads to the issue of conflicts of interest. Record keepers are not co-fiduciaries transparently selling their products and services. But most advisors sold themselves as co-fiduciaries, which means they cannot be paid additional compensation on products they recommend. Does that apply to managed accounts, financial wellness, wealth management, non-qualified plans or IRA rollovers? If not, why not?

According to Cerulli, 30% of plan sponsors are eager to retain assets of terminated employees and 45% are willing with many open to offering retirement income solutions yet the biggest obstacle is transferability from one provider to another. Why? Maybe some record keepers want to protect their rollover business, which has much greater margins. The ill-fated DOL fiduciary rule targeted IRA rollovers which would have required advisors to justify participants paying higher fund and advice fees outside the plan. If retirement income solutions are available, will advisors eschew rollovers that might generate more revenue?

Dave Gray, head of workplace retirement products and platforms at Fidelity Investments, recently noted that providers created unnecessary friction to retain assets, which could change with the recently announced Portability Service Network, an industry owned consortium created to eliminate much of the friction.

Our industry feels protected from competition because of regulations, unique distribution networks and technology. Which leads to limited innovation and antiquated technology providers claim is too expensive to change. The J.D. Power 2023 U.S. Retirement Plan Digital Experience Study shows that though our industry is improving, we are woefully behind the wealth, P&C and automotive industries. If we do not step up our game, others will be working directly with consumers circumventing record keepers’ systems and the plan advisor.

Fee compression fuels the need for scale, which leads to consolidation, which in turn leads to the search for additional revenue. That’s fine and even commendable but can create issues for co-fiduciaries especially when dealing with unsophisticated plan sponsors and their employees.

Just as providers who want to partner with advisors cannot and should not compete with them, or at least have clear rules of engagement, advisors cannot hold themselves out as fiduciaries and then offer proprietary products and services or those for which they are paid additional revenue even with all the proper disclosure. It may be legal but it’s not right.


Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.