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RPAs Need Wealth Management Skills to Serve Unadvised, Ignored 401(k) Participants

While wealth advisors need to serve smaller/start-up plans.

Last week’s RPA Edge column on the need to activate wealth advisors to serve the coming explosion of small plans due to government mandates and SECURE 2.0 tax credits went viral with almost 20,000 views on LinkedIn. But even more important is the need for retirement plan advisors to serve the estimated 97% of the 80 million defined contribution participants without a traditional financial advisor.

While wealth advisors are better equipped to serve the financial needs of participants, they are likely to cherry pick the top 5%, those with hidden or sudden wealth like the sale of a house or inheritance, or HENRYs (high earners not rich yet) leaving over 70 million unadvised and mostly ignored.

The fact that financial wellness is still such a hot topic even though there is little proof that it has meaningfully improved participant behavior shows the awareness of the need to help participants at scale. The issue is engagement or lack thereof, which no one has solved and why the DC industry continues to lean into auto features just as Ozempic has helped people lose weight, but does not result in them eating healthier or exercising more.

Most RPAs started as wealth advisors, financial planners or insurance agents serving the financial needs of individuals—a small percentage focused on the DC market estimated by Cerulli to be 4% or just 13,000 of the 288,000 financial advisors. They were all blind squirrels at some point—there is no RPA degree offered at college as far as know.

The move to fiduciary and the arcane ERISA rules as well as declining fees led wealth advisors to shun the DC market while many broker/dealers forced them to partner with specialists or just walk away from opportunities. Captrust led the charge by aggregators to pursue wealth services through acquisitions of wealth shops, beefing up wealth services and technology, and focusing on participant rather than plan fees. The acquisition of Lockton’s DC practice by Creative Planning sent shock waves throughout the RPA industry as a leading RIA aggregator steeped in the wealth business instantly became a top RPA aggregator, which continues with their recent acquisition of Mesirow’s $13 billion DC advisory practice.

All employers bestow a certain level of trust either implicitly or explicitly but larger ones will be more engaged with efforts to help employees. RPAs are better positioned to help the hordes of unadvised and ignored because they touch infinitely more DC participants than wealth.

Though many RPAs are still part of an organization that offers financial planning and wealth management services, many are not, and it is not obvious when or if DC practices will be able to develop them enterprise wide, something that private equity firms are betting on keeping valuations historically high. Intellicents’ Brad Arends recognized that his firm had to buy their way into the market after failed attempts to develop them internally.

At the recent RPA Edge Broker/Dealer Roundtable, Taylor Hammons, head of retirement plans at Kestra 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.” Helping RPAs to do wealth will be harder as most tools are geared for more affluent investors and current services are not offered at scale while there are many tools to help wealth advisors perform the Triple F functions.

But we have a lot of work to do, which includes:

  • The need for data, which requires the cooperation of providers as well as ways to safely share data with advisors
  • Upgraded record keeper technology and converting wealthtech to serve the less affluent at scale as well as leveraging AI to deliver advice at scale
  • Training of both wealth advisors on DC plans and RPAs on wealth beyond the empty online certifications
  • Cooperation and more conversations between record keepers, asset managers, broker/dealers, RIAs and RPAs
  • Further industry consolidation allowing the surviving RPA record keepers and advisory firms to invest to do both retirement and wealth

So while the DC industry should welcome RIAs to serve smaller plans, the wealth industry needs to embrace RPAs as they endeavor to service the financial needs of the 97% that are unadvised and ignored in DC plans.

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