Sometimes it takes a big deal like the Creative Planning purchase of Lockton’s $110 billion defined contribution practice to wake up and alert the market that big changes are afoot, just as CAPTRUST’s five-year buying spree of wealth management practices made other retirement plan advisor aggregators realize they needed to develop or acquire RIAs.
But Creative Planning and CAPTRUST did not create the change—they became aware of the market dynamics and leaned into it. So what are the market dynamics that are causing RPAs to scramble to offer wealth management and financial planning services and why did Creative Planning pay a reported $500 million to acquire Lockton’s defined contribution (401(k) and 403(b) plans) practice?
Most retirement plan advisors tend to focus on plan-level services like fees, funds and fiduciary. Though many RPA practices grew out of the wealth management business, very few have retained these capabilities because of perceived conflicts of interest while focusing on building a scalable DC business.
Similarly, the vast majority of RIAs have limited interest in DC plans because they are fraught with liability and are much less profitable with declining advisory fees while their core businesses continue to grow with little fee pressure.
Market dynamics, legislation and shifting client needs accelerated by the pandemic have presented myriad opportunities and challenges resulting in the convergence of wealth, retirement and benefits at the workplace.
Providers and Advisors Are Reacting
Due to record-keeper and advisor fee compression, their focus has shifted to serving and monetizing participants—though only a few have been successful. Exceptions include providers like Fidelity, Schwab and Vanguard and advisors like CAPTRUST and a handful of regional RIA/RPA firms that have developed integrated practices.
Participant products and services are beginning to evolve leveraging data, tech and access to participants at work. Today, the primary goal is to find high-net-worth and mass-affluent workers that can afford customized wealth management services. No one has figured out how to monetize and effectively serve the ignored or underserved participants estimated to be over 95% of the workforce.
Clients Want More
With the war for talent raging, especially for younger workers who highly value retirement plan services, employers now see DC plans as a strategic benefit that can be used to retain and recruit employees. Workers expect financial solutions like student loan repayment programs and emergency savings plans to be offered at work. For most workers, their RPA might be the only advisor they ever meet.
With a federal mandate looming and over 30 states either requiring or inducing employers to offer a payroll-deducted retirement plan at work, local and federal legislators and regulators are squarely focused on expanding coverage to the 5 to 6 million businesses that do offer plans.
Though there is concern about the use of participant data to cross-sell other products as well as privacy issues, there is an understanding that the workplace is an ideal arena to help people not only prepare for retirement but also deal with other critical financial issues.
The Triple F RPAs (fees, funds and fiduciary) charging asset-based plan-level fees are the walking dead with growth expected to be limited.
Until the Creative Planning deal, wealth managers eschewed the DC market ignoring the advantage they have over other RIAs to find and build relationships with the 5% of their DC participants that can afford traditional wealth management and financial planning services.
Fisher Investments built its massive business through content marketing, and Smart Asset is growing exponentially through calculators and content marketing to generate wealth prospects. Imagine the impact that these marketing efforts could have on a captive audience of DC participants where the advisor has the endorsement of the plan sponsor and access to employees and their data. And what better way to form relationships with HENRYs (high earners, not rich yet) than at work where their major asset is their paycheck?
No RPA firm has figured out how to make serving the 95% of less-affluent workers financially feasible, but for now, offering a third-party financial wellness tool may be good enough to satisfy the needs of the plan sponsor to get a foot in the door and replace Triple F advisors who do not.
RPAs and RIAs taking advantage of the convergence of wealth, retirement and benefits at work accessing 109 million DC participants will have a significant advantage over competitors whose mantra is: “I stay in my lane.” That lane is becoming narrower as the convergence of wealth, retirement and benefits at work squeezes out their opportunities, limiting their growth.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.