As the leading 401(k) record keepers gathered in Washington, DC June 4-5 for the sixth annual RPA Record Keeper Roundtable and Think Tank during the SPARK/DCIIA Public Policy Forum, Mark Alley at Alerus said “The 401(k) industry is entering its second golden age but must overcome issues with scale and implementation.”
Like all other Roundtables (Retirement Income 6/17-18; Broker Dealer 9/4-5; Aggregator 10/14-15), the agenda is open with no speakers enabling record keepers to detail their biggest opportunities and challenges as well as ways to collaborate with each other and other sectors of the industry.
Opening themes started with Todd Hedges, senior manager at Paychex, noting the vast disparity between the 12,000 RPAs compared to financial advisors, asking “how to crack the 275,000 wealth managers.” Steve Wagoner, VP of institutional sales at Penchecks, asked whether providers should build or buy, a question that was hotly debated, while Patrick Bushlack, director of business development at The Standard, noted how the war for talent is affecting all sectors.
Mark Iwry, nonresident senior fellow at the Brookings Institute, noted the DC industry is facing an existential moment as Congress addresses tax code provisions set to expire next year. When Wayne Park, CEO at John Hancock Retirement, relayed the story of how Hong Kong nationalized its retirement system, Iwry opined there is “zero chance” that would happen in the U.S. though there could be a federal mandate that could be costless to employers who simply need to allow providers to access payroll data. When Jeff Rosenberger, COO at Guideline, asked about retroactively mandating auto features required for new plans next year, Iwry answered it could be in SECURE 3.0 along with other provisions he could not elaborate on.
“Leveraging TPAs will be an important way to activate wealth advisors,” said Brian Connolly, Empower’s vice president of fund partner programs, though Park noted they may not even know what a TPA does, requiring the industry to simplify everything for them acting as their “bullpen” while leveraging their home offices.
Eric Phillips, advisor relationship manager at Betterment, said providers do not have to work exclusively with home offices to access advisors, as many do not have a broker/dealer affiliation, but we must create simple and easy to manage solutions plus a bit of painless education.
Denise Diana, SVP at Envestnet, said we have to create “digitalized engagement” for wealth managers who may be inhibited because they do not want to look stupid in front of clients.
Leading Connolly to suggest we have to work with asset managers’ vast network of retail wholesalers, something that Ryan Tiernan, institutional retirement strategic growth counselor at American Funds, said his firm has been exploring extensively to bridge wealth and retirement.
The entire discussion was centered around the explosion of 401(k) plans expected to reach almost 1 million by 2029 according to Cerulli—Hedges noted some may be sold direct, which is part of the strategy for payroll providers and fintech record keepers, as many small business owners do not have an advisor.
Principal Chief Transformation Officer Jeff Cimini was surprised that PEPs did not come up as a possible solution with Hedges reflecting that many advisors do not like them because they are not sure if they have a role.
As DC plans take over, Cimini opined that DB plans would not have been a good solution for today’s mobile workforce; he also asked, “Should record keepers simply be a processor of records or try to help people?”
The group agreed that the convergence of wealth and retirement is obvious and picking up steam, but little has been mentioned about benefits, though Allison Dirksen, Voya’s SVP and head of wealth solutions sales, said as plan sponsors wake up, they are looking to bundle benefits, a sentiment Michelle Woods, vice president of product solutions at Lincoln, echoed. Dirksen brought up the many issues with data that need to be resolved to fuel the convergence, noting the expense of building data bridges for each partner.
Which led to a major discussion of whether it is better to have users of data leverage APIs or rely on scraping with Dan Beck, CEO and co-founder of 401Go, voting for API, which he said is more secure. Jason Crane, head of core retirement at Ascensus, said screen scrapers can hurt system performance while Envestnet’s Diana noted that many screen scrapers skip DC plans altogether as the data is not reliable and skinny. There may be vast differences between the needs of wealth advisors data who may check many times a day compared with plan sponsors and RPAs with Crane asking whether flat files may be sufficient.
Leading Jerry Bonnabeau, Pontera’s head of DC partnerships to emphasize that his firm’s service allows advisors to safely and securely manage client’s DC accounts without getting data from record keepers, leveraging engagement by the participant though they are starting to reach out to providers on how to best partner.
Danya Dumbrill, chief strategy officer at Vestwell, relatively new to the DC industry, said this may be the most complicated financial services sector of all that she has encountered which, on the one hand, has protected the industry from outsiders, but, on the other, may be limiting sorely needed innovation.
Along with collaboration on AI standards suggested by Pete Welsh, Insipra Financial’s managing director, retirement and wealth, the group agreed the industry needs to collaborate on offering guaranteed income solutions to DC participants, something Empower is trying to do with various partners though Empower’s Connolly did acknowledge issues with cost, complexity and transferability. Iwry of the Brookings Institute asked whether transferability could ever be achieved with so many different solutions while Principal’s Cimini quipped that people could not and cannot transfer their DB benefits when they switch jobs—they may not even be able to keep the same investments—so why should we require it for guaranteed income solutions?
Overall, with the shortage of high-quality labor resulting in diminished service for all sectors, the question is how to survive when prices are level or going down while clients demand more. 401Go’s Beck, who comes from the consumer e-commerce industry which “enjoys” 2-3% margins, suggested the industry must become more efficient while Connolly said TPAs can be a solution if we properly enable them with technology.
One long time established provider not at the Roundtable was said to be rebuilding their record system, allocating $500 million for the project while the fintechs like Vestwell, 401Go, Betterment and Guideline have not just built new systems but they have reprogrammed the entire process focused on payroll integration and data.
So while future is bright for 401(k) record keepers, the challenges are equally daunting, which will lead to more consolidation, a topic not brought up along with litigation. Who will not just survive but win? Perhaps Roland Garros’s quote prominently displayed at the recent French Open is germane. “Victory belongs to the most tenacious.”
