Greetings and welcome to this week’s edition of 401(k) Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA Edge and CEO at TRAU, TPSU & 401kTV. I review all of last week’s stories and select the 5 most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
The 336,000 new jobs created in September was double what experts were predicting continuing a 33 month growth streak. Unemployment has been below 4% for 2 years as the war for talent marches on.
But with wages staying steady just up 0.2%, economists are less worried about an overheated economy which could result in higher interest rates.
Leisure and Hospitality led with 96K new jobs followed by government and education & healthcare.
So as the war for talent continues and the sentiment that most employers should offer DC plans, companies are looking to make benefits, especially retirement plans, more attractive as a way to recruit & retain talent.
According to a survey with advisors and consumers by Herbers, a financial advisory consulting firm, most of advisors are not meeting the needs of consumers.
90% of consumers want tax planning followed by 75% looking for retirement planning while just 73% and 67% respectively offer them. The 3rd most in demand is investment management at 55% which is actually down from previous studies.
Advisors tend to overestimate the importance of business and education planning and employee benefits.
Interestingly, 63% of the top organically growing firms believe they need to improve client services compared to just 36% overall.
All of which is good news for RPAs moving into participant services with tax efficiencies and retirement planning areas with which they are most comfortable with.
Though personalization and managed accounts are the talk of the industry, the reality may be quite different according to a research study with advisors especially as the default option. Just 17% of advisors are using them as the QDIA compared to 80% deploying TDFs.
The issues offering MAs as the default include:
- Costs
- Lack of data
- Engagement
Advisors also cited litigation concerns though many advisors are attracted to MAs as a way to generate additional revenue.
Deploying managed accounts relying exclusively on RK data and not taking into account outside assets is like a nutritionist designing a diet based only on what we eat for breakfast.
Is the right compromise smart TDFs? Perhaps but only if costs are comparable.
With the focus has been on new plan growth of traditional DC plans as a result of government mandates and tax credits in SECURE 2.0, the Starter K provisions of that same law have been mostly overlooked.
Guideline, the leading fintech RK with 44k plans, has announced a Starter K program which it claims is the 1st of its kind and offers low costs, simple compliance and fewer ER restrictions. The program offers:
- $6k limits
- No match
- Auto enrollment
- Payroll integration
Guideline claims that Starter Ks could bring retirement plans to 19 million more Americans.
Just as AI and technology will and already have changed the financial services industry, it is also not likely that human advisors will be replaced entirely.
All advisors will not be replaced for all people, but some advisors will be replaced and some people may prefer to use pure tech solutions.
In my column this week, I predict radical changes for 401k plans as a result of technology, government and societal pressures and the entry of new players like the hordes of wealth advisors. RPAs stuck in the Triple F model will get crushed but others will see opportunities to greatly expand their business.
So those were the most important stories from the past week. I listed a few other stories I thought were worth reading.
Please let me know if I missed anything or if you have any comments. Otherwise, I look forward to speaking with you next week on 401(k) Real Talk.
