The 401(k) or defined contribution world only works because of the connectivity and cooperation of unrelated entities. It would be simpler if one provider did everything—advice, record keeping and asset management—but the market demands independence and choice. The 401(k) food chain has so many more links than the wealth management industry, making it more difficult to navigate but also more promising.
The tissue that connects advisors, plan sponsors, record keepers and asset managers ultimately benefiting workers and their families if done right, are wholesalers. Technology and efficient operations leveraging scale are key for record keepers to thrive as are research and insights by fund managers, especially active ones, but there’s a reason that a large majority of national record keepers deploy armies of wholesalers and almost 50 DCIOs.
One way to determine the importance of a profession is the variance in quality. When all people in a profession are close to the same, that role becomes commoditized. Think of doctors, lawyers and even advisors—the gap between the best and worst is as wide as the Grand Canyon as is their compensation.
Similarly, the gap between the best and worst wholesalers, especially record keepers, is glaring. The best wholesalers are a combination of internal advocate, practice management guru and strategist, financial supporter, competitive analyst, purveyor of industry intel and gossip, and therapist. Try replacing that with ChatGPT.
RPAs have a tough job—most are on their own fighting against fee compression and RPA aggregators that have greater resources and capital. They need support, which they do not always get from the home office depending on the broker/dealer (only 29 have dedicated support desks). That is why their local wholesaler is so important.
Myopic financial analysts at providers and senior managers that did not grow up in the RPA world keep trying to cut back wholesalers and their compensation. Consolidation limits the number of positions with some keeping the youngest and least expensive. In a world of commoditization, wholesalers are a way to distinguish service. Which is why the best providers keep and hire the top talent from competitors.
Like their advisor counterparts, there is a graying of wholesalers, which can be a trying job due to travel. The pandemic helped because virtual meetings replaced some in-person ones if, and only if, there is a solid relationship already in place. Many of these professionals, older and a bit road weary, are not ready to retire even though they can financially. At TPSU, which programs average 10 wholesalers per program, I personally experience the joy and enthusiasm they have for their jobs and their strong connections to RPAs that they do not want to give up.
So bless the fintechs who do not or cannot hire the best wholesalers with many relying on leads from payroll companies; and PEPs which might limit the number of wholesalers needed; and DCIOs shifting focus to home office and asset allocators. None of these evolutionary changes will ever replace the lifeblood of the RPA DC market, which is the wholesalers, especially the wise yet graying one.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.