When asked at the inaugural RPA Aggregator Roundtable in 2018 if independent retirement plan advisors could survive, the overwhelming answer was, “Yes, but they will struggle to grow.” That sentiment proved correct as the RPA M&A market exploded.
Now the question is whether independent “purist” RPAs, touting their conflict-free business model as an advantage, can grow. The answer is likely the same, but the purist independents are now fighting a two-front battle making survival even more tenuous.
As a few wealth managers became 401(k) specialists 30 years ago, most highlighted their conflict-free approach as a benefit, with some arguing that cross-selling could be a fiduciary breach. Certainly, if an advisor recommends a participant move their money from the plan to a higher advisory fee IRA, it would be a breach, but it’s a stretch to argue against cross-selling other services like financial planning and rollovers—many advisors are even offering their own advisor manager accounts, which gets closer to the line.
What changed?
As RPA fees declined, advisors were forced to look for additional revenue. As wealth, retirement and benefits converge at the workplace, more plan sponsors want their advisors to help employees beyond the retirement plan. And no one is arguing that cross-selling is a fiduciary breach, nor have there been many, if any, lawsuits.
Purists in other sectors are also struggling, while those that offer current clients other services thrive. Certainly, record keepers like Fidelity and Vanguard look to mine their DC participant base while Empower paid $1 billion for Personal Capital for the same reason—others like OneAmerica, which did not, had to exit.
Wealth managers who do not offer services beyond investment advice and financial planning struggle to compete with others who offer additional services like tax and estate planning. Some, like Creative Planning, which acquired Lockton’s DC practice; Hightower, which bought institutional Investment consultant NEPC; and Mariner, which added similar capabilities with Andco and Cardinal, understand the power of offering current clients additional products and services.
IICs that serve the $1 billion-plus DC market moved away from non-fiduciary investment advisors to OCIOs years ago. Many also offer proprietary investments along with benefit consulting. The acquisition of NFP by AON is an attempt to go down market and access more clients and prospects at higher fees.
Even TPAs, especially national or regional practices, are going beyond compliance and consulting enhanced by technology, with some helping with payroll integration and outsourced HR functions along with cybersecurity
Tech giants like Amazon, Apple and Microsoft have strayed far beyond their original mission with obvious results.
Can the independent purist RPA without scale and access to technology, which will be especially important as AI usage, survive? Put another way, if you had $1 million to invest, would you bet on advisors who adamantly refuse to offer additional services to clients or join an aggregator?
Even aggregators are not immune. Just buying up additional firms in their own and different markets does not guarantee success. The pressure is on to show returns to their private equity owners for the high multiples paid for acquisitions, which requires integration, culture building and more capital along to assimilate technology.
In RPA RFPs conducted by TPSU, what is clear is that plan sponsors not only want their advisor to educate, guide and advise employees, but they require it while the purists end up being the most expensive bidder, which is a difficult, if not untenable business model. Sure, many of their clients of independent purist RPAs will remain loyal to them while others, like their employees, are plagued by inertia, but as RFPs increase, so will the decline of these advisors.
