A sea change is denoted by a radical transformation that requires a comprehensive revamp of a business’s strategies, systems, processes or structures. This significant change is often driven by major market shifts or threats to the organization’s survival.
Those in denial who believe that convergence of wealth, retirement and benefits is a fad will not grow and eventually become irrelevant. The discussion at the seventh annual RPA Aggregator Roundtable and Thinktank in San Antonio, Texas, last week focused on how to execute on the coming convergence driven by three major societal shifts that even the deepest moats surrounding the defined contribution industry cannot stem:
- The need to provide advice at scale to the 97% of DC participants without access to a personal advisor
- Explosion of small plans driven by government mandates to expand access
- Providing guaranteed income with 11,000 baby boomers retiring every day
The challenges on how to execute are as weighty as the opportunities:
- Safely accessing and leveraging participant data just as the government is scrutinizing cross selling and marketing of data
- The changing relationship between advisors and record keepers
- Leveraging technology, especially AI, to enable staff who are aging and hard to find and train while providing advice to the masses at scale
The group agreed it would take scale and capital to leverage the opportunities and overcome the challenges.
RPA aggregators have concluded that they cannot organically create wealth capabilities, so most have followed the Captrust model, acquiring wealth management firms. Joe DeNoyior, President at Hub International’s Retirement & Private Wealth division, commented that it is easier to “institutionalize” RPAs than RIAs, whose clients are more likely to leave if the advisor departs.
Most clients of large RIAs own or run a business and are either forced to start a retirement plan or want to consolidate relationships. This is drawing in many RIA aggregators like Mariner and Creative Planning, adding to the number of competitors who also see DC plans as a source of new wealth clients.
While most RPAs struggle to acquire and integrate RIAs, some are not sleeping. Brad Arends, co-founder and CEO at Intellicents, noted that Edward Jones, which is taking a fresh look at DC plans, is hiring more CFPs than anyone, followed by Fidelity and Schwab. Guess what they have in common? They are capturing rollovers. And Mike Griffin, UBS’ head of workplace wealth solutions, said 60% of new DC plans now come from generalists, which was almost 0% three years ago.
Scott Colangelo, managing partner at Prime Capital, commented that advisors have beaten up record keepers on pricing so much that they are forced to look for additional revenue by potentially competing with advisors. Not said is the fact that advisors have beaten each other up by lowering plan fees, forcing their hand as well.
Most often, we ask what RPAs want from record keepers, but when asked what record keepers want from advisors, Gary Tankersly, head of core segment at John Hancock Retirement, said he needs advisors to use services that generate additional revenue. This was echoed by Michael Doshier, global retirement strategist at T. Rowe Price. Tankersly noted that DC record keeper revenue is estimated to be $16 billion annually while IRA revenue is three times greater, which says everything about why there is a sea change.
There was also a big debate about what defines scale for record keepers, with Doshier and Tankersly questioning whether it is defined as close to or more than 10 million participants. Maybe more on this later.
Chris Weirath, SVP at Morningstar, confirmed that while managed accounts are growing, advisor-managed accounts are increasing even faster, enabling advisors to personalize investment portfolios while providing revenue for all.
UCLA Professor Emeritus Shlomo Benartzi asked why aggregators and broker/dealers do not collaborate to force record keepers to get data, especially to capture IRA rollovers. Anthony Bunnell, who just launched Peopled, a financial wellness firm leveraging AI and data, noted that his previous firm, Morgan Stanley, was able to get data, but with 18,000 advisors, it was hard to get them all on the same page. On the other hand, it was noted that Creative Planning is forcing record keepers to cooperate, freezing out those that do not.
While the opportunities to help people with financial planning, which Intellicents’ Arends said will become a standard benefit, the obvious and present-day opportunities include rollovers and retirement income. Luke Vandermillen, recently hired as head of retirement at Mariner, noted at Principal 75% of the opportunities were lost if not resolved on the first phone call, making referrals tricky.
NFP Senior Vice President Kameron Jones said the industry needs to lean into financial education, which his firm, recently acquired by AON, is investing in, something that can be a big differentiator and lead generator. Jim O’Shaughnessy from Hub noted that hiring and training the next gen of advisors is difficult for most firms, which is critical as John Jurik, Gallagher’s national practice leader, Retirement Plan Consulting, commented that it can be very difficult to get established RPAs to change their business models. Prime Capital’s Colangelo said that the convergence has helped his firm develop younger advisors who might have started by guiding and educating participants.
Professor Benartzi presented some ideas about how AI can be used to bring advisor at scale to the masses and will be convening an industry-wide forum on the subject, bringing in academics and technologists, next February at the Cornell Club in New York City.
“History never repeats itself, but it does often rhyme.” – Mark Twain
Thirty years ago, savvy wealth advisors saw an opportunity to serve 401(k) plans, which at the time was a blue ocean with much higher fees, by becoming specialists and eschewing participants' services to avoid conflicts. Today, with 23 times more generalists than RPA specialists who cannot possibly handle the explosion of small plans and have lost their wealth skill set, history may start rhyming as hordes of new competitors who can outsource the Triple Fs or leverage PEPs enter the DC market and begin to focus on the real opportunity within DC plans as the worlds of wealth retirement and benefits converge at the workplace.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
