A sea change is marked by a radical transformation that requires a comprehensive renewal of the strategies, systems, processes or structures of a business. This significant change is often prompted by major market changes or threats to the organization's survival.
The naysayers who believe that the convergence of wealth, retirement and benefits is a fad will not grow and will eventually become irrelevant. The discussion at the seventh annual RPA Aggregator and Thinktank roundtable in San Antonio, Texas, last week focused on how to apply to the coming convergence driven by three major societal changes that even the deepest divides surrounding the industry defined contributions cannot be restrained by:
- The need to provide advice at scale to the 97% of DC participants without access to a personal advisor
- The explosion of small plans spurred by government mandates to expand access
- Providing guaranteed income with 11,000 kids retiring every day
The challenges of how to execute are as dire as the opportunities:
- Access and secure use of participant data just as the government is scrutinizing the sale and marketing of data
- The changing relationship between advisers and data custodians
- Use of technology, especially AI, to enable staff who are elderly and hard to find and train by providing advice on scale measures
The group agreed that scale and capital would be needed to exploit the opportunities and overcome the challenges.
RPA aggregators have concluded that they cannot build wealth capacity organically, so most have followed the Captrust model, acquiring wealth management firms. Joe DeNoyior, President in 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 leaves.
Most large RIA clients own or operate a business and are either required to start a retirement plan or want to consolidate relationships. This is attracting many RIA aggregators such as 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 adopt 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 catching spins. And Mike Griffin, UBS's head of workplace wealth solutions, said 60% of new DC plans now come from generalists, up from almost 0% three years ago.
Scott Colangelo, managing partner at Prime Capital, which recently hired Jania Stout at OneDigital to head up their rebranded RPA group, commented that advisors have beaten the record holders on price so much that they are forced to seek revenue additionally potentially competing with advisers. . It doesn't say the fact that advisers beat each other down by lowering plan fees, forcing their hand as well.
Most often, we ask what RPAs want from record holders, but when asked what record holders want from advisers, Gary Tankersly, head of the core segment at John Hancock Retirement, said he needs advisers to use services that generate additional income. This was echoed by Michael Doshier, global retirement strategist at T. Rowe Price. Tankersly noted that DC's record-holder revenue is estimated to be $16 billion a year, while IRA revenue is three times that, which says everything about why there's a sea change.
There was also great debate about what defines the scale for record holders, with Doshier and Tankersly questioning whether it is defined as close to or more than 10 million participants. Maybe more on that later.
Chris Weirath, SVP at Morningstar, confirmed that while managed accounts are growing, advisor-managed accounts are growing even faster, enabling advisors to customize investment portfolios while providing income for all.
UCLA Professor Emeritus Shlomo Benartzi asked why aggregators and brokers/dealers don't cooperate to compel recordkeepers to obtain records, particularly to capture IRA rollovers. Anthony Bunnell, who just launched Peopled, a financial wellness firm that uses artificial intelligence and data, noted that his previous firm, Morgan Stanley, was able to get data, but with 18,000 advisers, it was hard to get everyone on the same page. On the other hand, it was noted that Creative Planning is forcing record holders to cooperate, freezing out those who do not.
While opportunities to help people with financial planning, which Arends of Intelligentsia said will become a standard benefit, the obvious and current opportunities include returns and retirement income. Luke Vandermillen, recently hired as head of retirement at Mariner, noted at Principal 75% of opportunities are lost if they are not resolved on the first call, making referrals complicated.
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 could be a big differentiator and lead generator. The Hub's Jim O'Shaughnessy noted that hiring and training the next generation of advisors is difficult for most firms, which is critical as John Jurik, leader of Gallagher's national practice, Retirement Plan Consulting, commented that it can be very difficult to reach established RPAs in change their business models. Prime Capital's Colangelo said the convergence has helped his firm develop younger advisers who might have started by mentoring and educating participants.
Professor Benartzi presented some ideas on how AI can be used to bring advisors at scale to the masses and will convene an industry-wide forum on the topic, bringing together academics and technologists, next February at the Cornell Club in New York City.
“History never repeats itself, but it often rhymes.” – Mark Twain
Thirty years ago, knowledgeable wealth advisors saw an opportunity to service 401(k) plans, which at the time were a blue ocean with much higher fees, by becoming specialists and avoiding participant services to avoid conflicts. Today, with 23 times more generalists than RPA specialists who can't handle the explosion of small plans and have lost their wealth skill sets, history may begin to repeat itself as a host of new competitors, who can outsource Triple Fs or use PEPs entering the DC market and begin to focus on the real opportunity within DC plans as the worlds of retirement wealth and benefits converge in the workplace.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.