Most retirement plan advisors evolved from the wealth management and financial planning industries with some retaining both retirement and wealth as part of an integrated practice. But many RPAs believed that a pure model focused only on plan services not trying to cross sell helped participants and evolve their practice.
The existential question now is whether the purist model helps or hurts participants and if this model is financially sustainable in what seems like an inevitable race to zero plan level fees.
There are a lot of benefits for RPAs that do not try to cross sell. No issues with data privacy or even getting access to data. No conflicts and competition with record keeping partners. Less liability and litigation risk. Lower cost structure and a simpler more streamlined focused business model.
Some employers may be concerned if the RPA they hire and implicitly if not explicitly endorses tries to sell their workers a product or service that may be inappropriate or, even worse, they commit outright fraud. It’s hard enough for plan sponsors to keep track of the advisor’s plan level services—it’s unrealistic to expect them to monitor all interaction with workers and understand all the inherent conflicts of interest like offering proprietary products.
On the other hand, the demand for help with retirement and other financial issues by plan sponsors has never been higher and only seems to be growing. The workplace seems to be the ideal way to reach the 97% of workers that cannot afford or do not want traditional wealth management and financial planning services. There’s better access, data and protection than in the open market plus integration with other worksite benefits. Traditional wealth management prospects are easier to uncover within the plan.
Plan sponsors are more willing to retain terminated accounts, especially high account balances, which opens up the retirement income opportunities.
The plan’s RPA may be the only advisor most workers ever meet. With more people open to remote interaction, the ability to serve more people more efficiently is only going to improve. Fintech, which is attracting tens of billions of dollars of investment, is crossing over into the DC market with firms like Pontera and Tifin understanding and trying to leverage workplace opportunities.
As the war for talent rages amidst the great resignation, offering holistic financial assistance and guidance is becoming and important tool to attract and retain workers.
And if the purist RPA is not willing to help and work with participants, most are left to fend for themselves or, worse, fall prey to annuity brokers selling high-cost proprietary products limiting flexibility. Granted, there are many record keepers like Fidelity, Vanguard, Schwab and now Empower through Personal Capital who are willing to help but they are not fiduciaries and will be selling proprietary products and services.
No doubt that purist RPAs can find some likeminded plan sponsors willing to pay more for the RPA’s services not subsidized by participant services. They need to understand the trade-off and be willing to provide documented due diligence that justify higher overall plan costs. It’s not as if the competition offering lower plans fees are bad or limited— we are talking about world class firms like CAPTRUST and Hub who are willing and eager to offer participants services offsetting their plan fees.
Obviously, I lean towards a more engaged RPA model, but that does mean that’s the right model for all advisors or plan sponsors. I get that. Some purist are partnering with RIAs to serve participants, which is a good alternative but hard to manage.
It just seems like purist RPAs are trying to preserve a business model that flies in the face of overwhelming and dynamic forces limiting their opportunities for growth leaving most participants to figure it out for themselves.
Can you make the case for the purist business model either as better for participants or as a better business model? Or, on the other hand, why the is cross modeling RPA model is harmful?
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
