Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
Now that the OMB has published the latest DOL fiduciary rule with some parts effective as early as September 23, 2024, it’s worthwhile taking a step back to review a rule that was born in 2010 and one retirement policy that does not have bi-partisan support.
The main issue is and has been rollovers requiring almost any professional advisor to be a fiduciary cutting back the 1975 five part test to just two parts. Wealth advisors, and their BDs as well as insurance providers and their agents will be most affected – they will need new policies and procedures or face severe consequences. All plan level advisors will be considered fiduciaries, which is especially important as the small plan market explodes.
Morningstar estimates that investors will save $55 billion over 10 years by being in a plan and another $32.5 bn for those that had bought annuities.
The CFP board study reported that 97% of American investors believe their advisor should act in their best interests which includes 92% of rollover investors. The DOL rule will enforce that belief.
Finally, as retirement takes center stage after being a financial services side show, so does the DOL which through this rule which could greatly affect wealth advisors traditionally governed by the SEC and keep more assets in plans with over $800bn rolling out every year. It could be a boon for RPAs as well as retirement income providers and will protect smaller plan sposnors and participants.
Echelon Partners reported robust advisor M&A activity in Q1 with 90 deals projecting 330 this year which would be most other than in 2021. It was the 2nd most robust Q1 since 2021.
Though interest rates are still relatively high, PE firms have not lost their appetite while strategic buyers accounted for 24 transactions with more equity involved. There are new players taking a minority & passive role, while new roll-up firms emerge armed with capital led by 2nd act veterans like Joe Duran, founder of United Capital, and Karl Mecklenburg, former CEO at Emigrant Partners.
Not mentioned though growing are RPA aggregators now squarely focused on buying wealth firms while RIA aggregators like Creative Planning and Mariner, as well as smaller firms like MAI Capital, see potential in acquiring DC practitioners.
Regional RPAs, especially those without wealth capabilities, will struggle to keep pace while RIAs face challenges finding new clients all of which will further fuel the convergence of wealth and retirement at work.
Callan’s 17th annual plan sponsor study with 132 plans, 65% over $1bn and 89% over $200m, show plan sponsors’ continuing concern about litigation and liability with more plans offering index funds, cheaper CITs and continued fee review initiatives - just 13% now use revenue sharing to offset costs.
ESG interest is lagging with 76% not using them or not interested at all while interest in managed accounts grows with 58% offering them though there is concern about levels of engagement and improper usage. 94% offer target date funds.
While the institutional market is learning about participant services from retail advisors as they too search for more revenue, there are many trends and lessons that RPAs can glean from larger plans especially about investments and plan sponsors.
Another fintech record keeper looking to leverage the small plan explosion through technology and more efficient processes raised capital with 401GO closing on a $12 million Series A round led by new investor Next Frontier Capital joined by some current investors.
Started in 2019 by Dan Beck, 401Go has taken a measured approach focused squarely on serving advisors and currently working with 2500 businesses with 30,000 active accounts.
Private equity continues to poor capital into fintech record keepers with Vestwell raising $125m recently and Human Interest reported to be looking for another nine figure investment joining Guideline and Betterment as significant alternatives. These investors are betting on the convergence with 401Go, based in Utah, using some of the money to build out their wellness, HSA and emergency savings capabilities as well as hire more staff. They are a firm worth looking at.
As retirement planning takes center stage emerging from what was once a financial services side show, it will further accelerate industry consolidation particularly for record keepers and advisory firms. While societal pressure is creating opportunities in the form of convergence, small plan explosion, technology and the DB-ization of 401k plans, they also create challenges and threats.
Read my recent WealthManagement.com column about how these pressures will accelerate record keeper and advisor consolidation as those that resist change will be forced to either exit or sell.
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
- What’s next for the buoyant advisor M&A market
- John Hancock’s Wayne Park reveals plans for retirement division after one year in the driver’s seat
- Advanced record keeper tech affording more personalization
- Blackrock announces new retirement income service
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.