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Technology, Government and Societal Changes Forcing Radical Transformations for 401(k) Plans

And why most RPAs are not equipped or, worse, even aware of them.

Just as artificial intelligence and technology will and already have changed the financial services industry, it is also not likely that human advisors will be replaced entirely. The hardest element for technology to replace is human empathy and intuition, traits that are becoming paramount for today’s financial advisors just as behavior financial has produced better results than pure economic theory.

All advisors will not be replaced for all people, but some advisors will be replaced and some people may prefer to use pure tech solutions.

As I wrote in my last column, the role of retirement plan advisors has changed with the advent of target date, or professionally managed investments, and the ideal or auto plan. That role has shifted to helping plan sponsors better understand why they should use these services and how to implement them when senior management resists.

The “Triple F” RPA focused on fees, funds and fiduciary are the walking dead practically inviting technology, record keepers and less experienced wealth advisors to take over their business as societal shifts have moved the needle. Those who continue to resist or deny the coming changes will blame others for their demise, but the results will be the same.

Along with technology and AI, the dynamics of workplace retirement are shifting providing massive new opportunities as well as threats and challenges. With the war for talent still raging evidenced by the latest job growth in a post-pandemic era of unprecedented job creation and low unemployment, plan sponsors are searching for new ways to retrofit their retirement plans to help workers with financial issues while integrating all benefits.

Government and society have recognized the value and need for workplace savings moving toward mandating almost all employers offer a plan while providing tax incentives and vehicles like pooled employer plans to facilitate their implementation.

And just as workplace savings platforms are being retrofitted, so too are defined contribution plans to replace defined benefit plans, which means there must be an embedded, in-plan retirement solution or even a government default akin to a supplemental Social Security system.

All of which is opening the door for wealth advisors whose clients are either participating in a DC plan, being forced to start one or are currently running one either as an owner or as part of senior management. While most wealth advisors do not want to become 401(k) or 403(b) specialists, they outnumber RPAs by 20 times and are better equipped to help workers with their financial issues armed by third party solutions which can perform many of the Triple F functions while implementing professional managed investments for the masses and the ideal plan which solves the accumulation part of the equation.

Likewise, providers like Fidelity, Schwab and Vanguard, who are the largest robo advisors by far, along with a growing number of record keepers like Empower, will be practically giving away basic record keeping services to get access to participants as they do now for stock option plans.

When you consider that fintechs, either embedded in popular consumer apps or those working around the DC system because of the virtual “moats” built to protect, as well as banks, insurance companies and benefit providers and brokers, are eager to tap what Morgan Stanley’s CEO James Gorman claims will be the No. 1 source of asset, and you get a sense of the challenge traditional RPAs face.

Most of today’s RPAs started as wealth advisors helping clients with their 401(k) plans with many morphing into pure specialists eschewing financial advice focusing exclusively on plan level services. Now they must retrace their steps in a true “back to the future” scenario.

Rather than complain that record keepers are stealing their business, shouldn’t advisors with the resources, technology and capacity to serve participants focus on their competitive advantage as a co-fiduciary with personal access? And if that provider’s business model has transformed because of industry and societal changes, change into record keepers but only if it is in the best interest of the participants.

But don’t complain or pine over the good old days or get angry because the world is changing or, worse, be in denial. Tune in, turn on or drop out.

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

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