There is no doubt that retirement plan advisors, especially aggregators, are fascinated with the wealth management and financial planning businesses either to better serve participants, distinguish themselves or generate additional revenue. But to date, very few wealth managers have shown the same interest in 401(k) plans.
Can Envestnet, which has over 100,000 advisors on their TAMP, owns Yodlee and has made attempts to enter the retirement market, get wealth managers to look at the 401(k) market especially as more states like California, Oregon and Illinois are requiring most small businesses to offer workers access to retirement plans?
Starting with the hiring of Sean Murray in November 2021, a noted industry professional who had led BlackRock’s DCIO after working in similar roles at PIMCO and Goldman Sachs, and then the recent purchase of 401kPlans.com, started by Scott Buffington, it appears that Envestnet is trying to take another run at the DC market after having integrated their retirement division, which had been led by Babu Sivadasan.
Though Envestnet had made some significant inroads into the 401(k) industry and currently has data on 200,000 plans and generates half its retirement revenue from fiduciary services, mostly to generalists, their retirement division was not considered a success by the industry as they were not able to deliver the data and analytic tools after making bold promises.
Yet they still have considerable assets upon which to rebuild, including 60 enterprise relationships with RPA firms and broker dealers, but more importantly the 400 enterprise relationships the mothership enjoys as well as 1000,000 wealth advisors, their vast wealth tech and data aggregation capabilities.
Rather than myopically focused on the RPA market where competitors like RPAG, fi360 and Fiduciary Decisions have thrived, the bigger opportunity, according to Murray, is to help wealth managers leverage relationships with business owners and managers.
“Our goal is to is to take a complicated business and make it easy and compliant for wealth advisors and home offices,” he said.
Key to his plans to create a retirement exchange, which sits alongside their insurance and credit exchanges, is 401kPlans.com which Murray characterizes as a “digital market place rather than an RFP tool that any advisor can use to shop and benchmark a plan in five clicks.”
401kPlans.com already has more than 20,000 advisors using their system that has captured the pricing algorithms of many small market record keepers, which allows users to automatically price and benchmark plans. With their 3(38) fiduciary services, Envestnet may be able to simplify the creation and management of 401(k) and 403(b) plans for wealth advisors as well as experienced RPAs who struggle with the economics of smaller plans.
“Technology will change things along with legislation which enabled PEPs, state mandates and the DOL’s fiduciary rule,” Murray said.
The DOL’s 2020-02 PTE could result in more assets staying in plans hurting wealth advisors’ IRA rollover business who may turn to DC plans to offset the lost revenue or make rollovers easier to manage.
But currently, most wealth managers are not focused on DC plans as the margins are much lower while the liability and complexity are much higher? So why change?
The reality is that most wealth managers already manage DC plans either accidently because a client asked for help or because one of the founders saw the opportunity at some point to cross sell wealth management to participants.
Using data analytics, Murray claims Envestnet can help advisors identify small business opportunities among their wealth clients, a big goal for wirehouses like UBS, and presumably they can identify wealth management opportunities within the DC plans advisors manage.
Change is coming to the DC market because of the overwhelming needs of almost 100 million workers to get financial assistance at work and the pending massive small plan creation due to government mandates and incentives. Currently, RPAs and providers are not ready to capitalize on these opportunities, which will require the hundreds of thousands of wealth advisors, their relationships, technology and financial planning expertise. Can Envestnet help bridge the gap? Let’s hope so.