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Broker/Dealers at the Vortex of the Convergence of Wealth, Retirement and Benefits at the Workplace

Many factors, including new state mandates for small business retirement plans, are opening a vast market for traditional wealth managers, argued a host of executives at the recent RPA Broker/Dealer Roundtable event in New York City.

As momentum builds around defined contribution plans driven by the convergence of wealth, retirement and benefits at the workplace, the DC industry gathered at a high-level roundtable hosted by at the fi360/Broadridge offices in New York City to discuss how to best leverage the expanding opportunities.

Retirement leaders at broker/dealers have struggled in the past to serve both the specialists and wealth advisors with limited resources and collaboration with their wealth divisions. It seems the tide has turned, finally, as leaders like Morgan Stanley’s CEO James Gorman predicts that the workplace will become the No. 1 source of assets over the next 10 years.

Dabblers were told to exit the DC market over a decade ago because 401(k) plans were too complicated, needing experts to manage them as co-fiduciaries. With the explosion of small plans due to government mandates and tax credits in SECURE 2.0 and the ability of wealth advisors to outsource fiduciary duties or use a PEP, wealth managers are not just being welcomed back, they are essential.

“How do we invite wealth advisors back?” asked Denise Diana, senior vice president at Envestnet. “The previous fiduciary rule had alienated them. There are not enough RPA specialists in Connecticut to handle the 30,000 new plans expected because of the state mandate.”

Scott Smith, managing director at Hightower, noted, “Rather than focusing on 401(k) plans, wealth managers need to serve all needs of the business owner clients with retirement plans just one of many services to help them differentiate beyond wealth services.”

“Maybe we should call them wealth managers, not ‘blind squirrels’” quipped Adelaine Wong, retirement plan leader at Cetera. She said she is excited about the growing interest in DC plans at her firm, led by new CEO Mike Durbin, who had most recently run Fidelity’s RIA division.

Taylor Hammons, head of retirement plans at Kestra, echoed the group’s sentiment when he said, “We need to demystify 401(k) plans for wealth advisors and make it simple for them just as we need to help RPAs do wealth.” He said much of the RPA frustration with record keepers that also offer wealth services to participants is because there are not enough conversations and expectations have not been properly set.

Whether advisors or embrace them or not, PEP/MEP guru Kelly Michel warned, “RPAs need to at least know about PEPs to answer questions by clients. Record keepers are the biggest obstacle to PEPs because they are trying to build them based on current business models and systems.” She said the wholesale close rate at Transamerica, where Kelly had led their PEO/MEP program over 20 years ago, was over four times higher than single plans and assets were three times stickier.

Shawn Daly, head of DC experience and products at MassMutual, which recently launched a PEP with Alerus, said they were able to greatly reduce advisor paperwork and harmonize it between the provider and broker/dealer, a problem that still plagues single plans and one that the group strongly believed the industry should solve together.

And while the group agreed that PEPs offered great opportunities for RPAs and wealth managers alike to serve small and start-up plans, Gary Tankersly, John Hancock’s head of sales and distribution, said, “All small plans do not have to go into a PEP. We do 3,000 start-ups annually and make money on them.” He also said more broker/dealers were asking John Hancock to “activate” more advisors in their system, a notion echoed by Shelli Vandemark, executive director at Morgan Stanley.

Other themes that resonated in the group included:

Retirement IncomeThough still not available on many platforms, (Allianz’ Head of DC Distribution Mike DeFeo noted many record keepers have been distracted by SECURE 2.0 requirements) he thought the best option was to include them in managed accounts and that engagement and interest grows as people near retirement age.

Managed Accounts and Personalized TDFs – Jim Smith, head of retirement strategy at Morningstar, said advisor managed accounts are growing quickly (along with plans $100 million to $1 billion) as advisors do not want to have to move participants or plan sponsors into a new system every time they change providers. Much discussion about customized target date funds launched by Capital Group, the home of American Funds, which may be an option on the way to managed accounts. Smith did not see these funds as a threat to managed accounts as they can lead to greater engagement. flexPATH launched their own customized TDF in 2015 offering three versions for each series, noted Jesse Taylor, Retirement Plan Advisory Group’s senior vice president.

Data – While all sectors noted that data is needed to “activate” or better serve participants, lawsuits and state laws require extreme care. Cybersecurity was also highlighted by Voya Senior Vice President Mark Jackowitz and Lori Commerford, head of intermediary relations, as a major threat with providers and plan sponsors focused and advisors also aware of the issue.

Integration of DC and Personal Assets – Many broker/dealers mentioned how Pontera is allowing their advisors to manage clients’ DC and outside assets without compromising data security. MassMutual’s Daly asked how firms like Envestnet that work with outside assets could integrate with DC data aggregators like RPAG and fi360. Joel Schiffman, head of strategic partnerships at Schroder Investment Management, noted that assets managers have traditionally bifurcated their retail and DC sales force though Ryan Tiernan, institutional retirement strategist at American Funds, said his firm was attempting to bridge that gap between retirement and wealth by harmonizing and properly incenting their respective sales forces.

Ancillary Services – Student loans and emergency savings options were of interest to the group but most acknowledged that they are just beginning to take hold as SECURE 2.0 rolls out which is being offered by Candidly. While not a money maker for advisors, the group agreed they can be a great engagement tools and differentiator for advisors. John Faustino, head of retirement products at Broadridge, noted that a trucking company found that drivers with emergency savings had fewer accidents.

Retirement Security Rule – The newly minted DOL had just been released so there were more questions than answers. Daly coined it the “Oprah Rule,” meaning “we are all fiduciaries,” including advisors giving rollover advice, annuity brokers and any advisor helping set up a plan menu.

RPAG’s Jeff Cheshier noted at the end that broker/dealers who attend provider due diligence forums always value the interaction with peers most of which is usually limited as the provider’s products and services understandably have to be highlighted. He valued the RPA Roundtable because the entire five hours was about interaction not just with peers but also record keepers, asset managers and tool providers from many different groups allowing for different perspectives.

Hope we can include more of the industry in 2024 as the RPA Roundtables continue for:

  1. Aggregators (inviting more RIAs and institutional consultants)
  2. Record Keepers
  3. Broker/Dealers
  4. Retirement Income

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

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