Hello and welcome to this week's edition of 401k Real Talk. This is WealthManagement.com's Fred Barstein Omnichannel RPA Contributing Editor & CEO at TRAU, TPSU & 401kTV – I Review everything from the past week's stories and pick out the most relevant and interesting ones offering an open honest and frank discussion that you wouldn't get anyway. So let's get real!
Now that OMB has published the latest DOL fiduciary rule with some parts effective as of September 23, 2024, it is it's worth taking a step back to overhaul a rule that dates back to 2010 and a pension policy that lacks bipartisan support.
The main issue is and has been the reversal that requires almost every professional adviser to be a fiduciary by cutting the 1975 five-part test down to just two parts. Wealth advisers, and their BDs, as well as insurance providers and their agents will be most affected – they will need new policies and procedures or face dire consequences. All plan-level advisors will be considered fiduciaries, which is especially important as the small plan market explodes.
Morningstar estimates that investors would save $55 billion over 10 years by being in a plan and another $32.5 billion for those who had purchased annuities.
The CFP board study reported that 97% of US investors believe their advisor should act in their best interest, which includes 92% of return investors. The DOL rule will enforce that trust.
Finally, as retirement takes the spotlight as a financial services sideshow, so does the DOL, which through this rule could greatly influence wealth advisors traditionally governed by the SEC and hold more assets in plans. with over $800 billion distributed annually. It can be a boon to RPAs as well as retirement income providers and will protect smaller plan sponsors and participants.
Echelon Partners reported strong advisory M&A activity in the first quarter with 90 agreements predicting 330 this year that would be more diverse than in 2021. It was 2n.d strongest first quarter since 2021.
Although interest rates are still relatively high, PE firms have not lost their appetite as strategic buyers accounted for 24 transactions with more capital involved. There are new players taking a minority and passive role, while new crowdfunding firms emerge armed with capital led by 2n.d veterans like Joe Duran, founder of United Capital, and Karl Mecklenburg, former CEO at Emigrant Partners.
Not mentioned though are the growing number of RPA aggregators now focused on buying property firms, while RIA aggregators like Creative Planning and Mariner, as well as smaller firms like MAI Capital, see potential in buying DC practitioners .
Regional RPAs, especially those without wealth capabilities, will struggle to keep pace as RIAs face challenges in finding new clients, all of which will further drive wealth convergence and retirement in work.
Callan's 17th Annual Plan Sponsor Study with 132 plans, 65% over $1 billion and 89% over $200 million, it demonstrates plan sponsors' continued concern for litigation and liability with more plans offering index funds, cheaper CITs and ongoing review initiatives of fees – only 13% now use revenue sharing to offset expenses.
ESG interest remains with 76% not using them or not interested at all, while interest in managed accounts increases with 58% offering them, although there are concerns about levels of engagement and misuse. 94% offer target date funds.
While the institutional market is learning about participant services from retail advisors as they too seek more revenue, there are many trends and lessons that RPAs can learn from larger plans, particularly regarding investments and plan sponsors .
Another fintech record holder looking to capitalize on the small-cap explosion through technology and more efficient processes raised capital with 401GO closes on a $12 million Series A round led by new investor Next Frontier Capital, joined by several existing investors.
Started in 2019 by Dan Beck, 401Go has taken a measured approach focused squarely on serving advisors and currently working with 2,500 businesses with 30,000 active accounts.
Private equity continues to be thin on fintech record holders with Vestwell raising $125 million recently and Human Interest reported seeking another nine-figure investment, joining Guideline and Betterment as notable alternatives. Those investors are betting on convergence with Utah-based 401Go, using some of the money to build their welfare, HSAs and emergency savings capabilities as well as hire more staff. They are a firm worth watching.
As retirement planning takes center stage emerging from what was once a financial services sideshow, it will further accelerate industry consolidation, particularly for recordkeepers and advisory firms. While societal pressures are creating opportunities in the form of convergence, the explosion of small plans, technology, and the DB-ization of 401k plans, they are also creating challenges and threats.
Read my latest WealthManagement.com column on how these pressures will accelerate the consolidation of holders and advisers, as those who resist change will be forced to either exit or sell.
So those were the top stories from last week. I listed a few others that I thought were worth reading:
Please let me know if I missed anything or if you would like to comment. Otherwise, I look forward to talking with you next week on 401k Real Talk.