A SWOT analysis is a strategic planning tool that examines four key factors: Strengths, Weaknesses, Opportunities, and Threats. It involves evaluating internal strengths and weaknesses and comparing them to external opportunities and threats or challenges to uncover potential areas for growth and improvement.
A SWOT analysis is especially critical for any industry going through massive change like workplace retirement planning. Ironically, the defined contribution plan industry’s biggest opportunities are also the industry’s biggest challenges. The 25 RPA Roundtables, started in 2018 for home office leaders at broker-dealers, record keepers, aggregators and retirement income providers, have repeatedly emphasized their biggest opportunities which include:
- Explosion of small and start-up plans;
- Convergence of wealth, retirement and benefits at the workplace; and
- The dire need for in-plan retirement income.
The RPA industry is complex, though much smaller than the wealth management industry, and while the two worlds have interfaced in the past, they are now colliding. To increase access to retirement plans at work, more states are mandating their availability, while the Feds have provided tax incentives. This convergence is attracting more wealth advisors who have either avoided 401(k) plans or have been told to stay away.
RPA aggregators led by CAPTRUST have been aggressively buying wealth firms as plan fees decline to leverage participant services. Benefit firms have been buying up RPAs to cross-sell while RIA aggregators like Creative Planning, Mariner and Hightower are buying into the DC market.
The seemingly endless quest to offer a guaranteed income to DC participants continues in an industry that is yet to be born.
But leveraging immense opportunities, which include over $11 trillion in DC assets and over 80 participants, will be challenging. It will require collaboration due to complexity among groups that are not necessarily aligned and may even compete against each other, as well as capital and technology.
Most RPA specialists, which number 12,000, have migrated upmarket and no longer have the bandwidth or capabilities to profitably serve smaller DC plans. Most of these firms do not have strong wealth or financial planning expertise or resources to leverage relationships with the participants in the plans they manage.
Wealth advisors, 20 times as many as RPAs, do not understand how to set up or manage 401(k) and 403(b) plans, lacking internal expertise. Data availability makes it hard to find attractive wealth clients, while most advisors have limited resources to market to participants, most of whom cannot afford the high-touch, customized service wealth advisors provide to high-net-worth or even mass-affluent clients.
Other than including them in target date funds or managed accounts, no one has been able to get significant adoption of retirement income solutions due to many issues including cost, transparency, flexibility and transferability.
Advisors must partner with or at least navigate DC record keepers, many of whom may want to serve participants themselves as their plan fees have declined. 1990s technology makes offering add-on services challenging, as does managing participant data and ensuring cyber security while costs increase.
Without the cooperation of plan sponsors, advisors have little chance to capitalize on the looming opportunities. Most small—to mid-size plans, as well as some larger plans—delegate responsibility to HR and benefits professionals who have minimal experience and less training to manage their DC plan, while senior management's agenda is to minimize work, costs and liabilities.
Participant engagement is necessary for retirement income, and convergence is anemic, with auto features being the only tried-and-true remedy.
So, while the workplace may be the greatest source of assets for advisors, according to Morgan Stanley’s former CEO, with over $11 trillion in assets and over 80 million participants expected to grow from 620,000 401(k) plans alone to almost 1 million within a decade, the challenges are fierce, which will further drive industry M&A and consolidation.
401(k) plans are not a niche. The opportunities are immense and enticing. RPA firms that have wealth management capabilities and RIAs that have even a few DC plans are more profitable. Successful advisory firms will realistically assess their internal strengths and weaknesses determining whether to build, buy or partner picking those partners very carefully, whether other advisors or record keepers.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
