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A More Focused Idea of ‘Convergence’

“Life moves pretty fast. If you don’t stop and look around every once in a while, you could miss it.”

Over the past six years we have all heard repeatedly about the “convergence” between two respective aspects of the financial advisory world—retirement plan advisors and wealth management advisors.

The theory goes something like this:

Retirement plan advisors, who advise both for-profit and tax-exempt companies on their retirement plans, are at the forefront of accessing the participants within these plans to offer financial planning, private client and investment management services. After all, they already know the companies’ management teams, and often already provide educational services to those same participants. Don’t think for a moment however that this is an altruistic endeavor—the very real added benefit of this migration is that the wealth management business is 3-4 times more profitable than retirement plan consulting, and the sales cycles are less than half as long.

Conversely, wealth managers would like access to the participants to offer their array of wealth management services in a confined location and under one company umbrella. Finally, there is yet another convergence between benefits brokers who have entered the retirement space, only to find themselves in a much lower margin environment than their current businesses and have tried to move into the world of wealth. Notwithstanding the fact that most of these benefits brokers will not likely achieve economies of scale to adequately service any meaningful part of their client base, they are nibbling at the fringes, as they do not have the wherewithal nor capital to compete with elite RIAs and wealth management firms, who command massive multiples based upon their high-profit margins, the attractive demographic tailwinds, and the wildly sticky nature of their client base. Nevertheless, it will help the profitability of those benefits brokers.

There is an array of aggregator firms that have leaped headfirst into this convergence—Captrust, SageView, Creative Planning, Mariner, OneDigital, and Hub. My old firm, Sheridan Road (now part of Hub) was a pioneer in this holistic view—we had integrated retirement plan consulting, wealth management and executive compensation from our inception more than 20 years ago.

Two conclusions from which to draw. First, RPAs often don’t have the bandwidth, skillset nor technology to capitalize on this obvious opportunity. The brass ring has been staring the industry in the face for decades and yet, very few have made the successful leap. Second, wealth managers who dabble in the RPA space are often willing to give away the retirement plan work almost for free, just to have access to the participant base. It’s viewed more as marketing or Trojan horse play than an actual desire to advise investment committees on 401(k) plans.

But what if convergence could take on a new, more focused approach?

What if RPAs abandoned their more ambitious plan to work with all the participants, but rather focused on the owners and management teams of their clients—the high-net-worth or ultra-high-net-worth segment of the market? What if they partnered with an outsourced family-office provider to service these clients under a private labeled solution? Tax strategy and estate planning. Risk mitigation services. Bill-payment. Outsourced CFO services. Alternative asset management capabilities. RPAs already outsource much of what they already do—asset management (mutual funds, ETFs, CITs), reporting (Orion, Envestnet, provider-driven), and thought-leading marketing materials (provider or asset manager). Under a separate entity of course, this would enable them to serve the decision-makers within the company, going directly to the sharp end of the stick of convergence, meaningfully improving profit margins when they need it most and retaining a tighter hold on their clients and be the gatekeeper they always envisioned their practice becoming.

Similarly, current wealth managers should also consider partnering with an outsourced family office provider. It’s prohibitively expensive to build all these capabilities in-house, although some are trying (see Mariner, et al). They could expand from the mass affluent to the high net worth space overnight.


Daniel Bryant is the author of The Financial Wellness Mandate and Operating Partner, Vistria Group

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