Is the 401(k) Industry Entering a 'Second' Golden Age?


As leading 401(k) record keepers gathered in Washington, DC, June 4-5 for the sixth annual RPA Record Keeper Roundtable and Think Tank during the SPARK/DCIIA Public Policy Forum, Mark Alley at Alerus said “The 401(k) industry k) is entering a second golden age, but needs to overcome problems with scale and implementation.”

Like all the others Roundtables (Retirement Income 6/17-18; Intermediary Trader 9/4-5; Aggregator 10/14-15), the agenda is open without speakers allowing data holders to detail their biggest opportunities and challenges, as well as ways to collaborate with each other and other industry sectors.

The threads started with Todd Hedges, senior manager at Paychex, noting the stark disparity between the 12,000 RPAs compared to financial advisors, asking “how to crack the 275,000 wealth managers.” Steve Wagoner, VP of institutional sales at Penchecks, asked whether providers should build or buy, a hotly debated question, while Patrick Bushlack, director of business development at The Standard, noted how the war for talent is affecting all sectors.

Mark Iwry, senior nonresident fellow at the Brookings Institution, noted that the D.C. industry is facing an existential moment as Congress tackles provisions of the tax code that will expire next year. When Wayne Park, CEO at John Hancock Retirement, told the story of how Hong Kong nationalized its pension system, Iwry thought there was “zero chance” that would happen in the US, although there might be a federal mandate that could be at no cost to employers it simply needs to allow providers to access payroll data. When Jeff Rosenberger, COO at Guideline, asked about retroactively mandating vehicle features required for new plans next year, Iwry replied that it could be in SECURE 3.0 along with other provisions that he couldn't. elaborated.

“Using TPAs ​​is going to be an important way to enable wealth advisors,” said Brian Connolly, Empower's vice president of fund partner programs, though Park noted that they may not even know what they're doing. a TPA, asking the industry to simplify everything for them by acting as their own. “bullpen” while using their home offices.

Eric Phillips, advisor relationship manager at Betterment, said that providers should not work exclusively with home offices to access advisors, as many do not have a broker/dealer relationship, but we should create solutions that are simple and easy to manage plus little pain free. education.

Denise Diana, SVP at Envestnet, said we need to create “digitized engagement” for wealth managers who may be holding back because they don't want to look stupid in front of clients.

Leading Connolly to suggest we should work with the asset manager's extensive retail dealer network, something Ryan Tiernan, institutional growth strategic retirement advisor at American Funds, said his firm has been exploring extensively to overcome wealth and retirement.

All of the discussion centered around the explosion of 401(k) plans that are expected to reach almost 1 million by 2029, according to Cerulli-Hedges, who noted that some may be sold outright, which is part of the strategy for payroll providers. and fintech data handlers. Small business owners don't have an advisor.

Chief Transformation Officer Jeff Cimini was surprised that PEPs didn't emerge as a possible solution with Hedges reflecting that many advisers dislike them because they aren't sure if they have a role.

As the DC plans take over, Cimini felt that the DB plans would not have been a good solution for today's mobile workforce; he also asked: “Should data controllers be just a data processor or should they try to help people?”

The group agreed that the convergence of wealth and retirement is evident and gaining steam, but little has been said about the benefits, although Allison Dirksen, Voya's SVP and head of wealth solutions sales, said that as plan sponsors wake up , they're looking to package the benefits, a sentiment echoed by Michelle Woods, vice president of product solutions at Lincoln. Dirksen brought up many data issues that must be resolved to drive convergence, noting the expense of building data bridges for each partner.

Which led to a big discussion about whether it's better to have data usage APIs or rely on scraping with Dan Beck, CEO and co-founder of 401Go, voting for the API, which he said is more sure. Jason Crane, head of retirement at Ascensus, said that screen scrapers can hurt system performance while Envestnet's Diana noted that many screen scrapers bypass DC plans altogether as the data is unreliable and weak. There can be big differences between the data needs of wealth advisors who may check multiple times a day compared to plan sponsors and RPAs with Crane who wonder if flat files might be enough.

Leading Jerry Bonnabeau, Pontera's head of DC partnerships, to emphasize that his firm's service allows advisors to safely and securely manage clients' DC accounts without obtaining data from recordkeepers, driving the engagement of participants even though they are starting to contact providers on how to do it better. partner.

Danya Dumbrill, chief strategy officer at Vestwell, relatively new to the DC industry, said this may be the most complicated financial services sector she has encountered, which, on the one hand, has shielded the industry from foreigners, but, on the other hand, can limit much-needed innovation.

Along with the collaboration on AI standards suggested by Pete Welsh, Insipra Financial's managing director, superannuation and wealth, the group agreed that the industry needs to collaborate to provide guaranteed income solutions for DC participants, something Empower is doing tries to do with different partners even though Empower's Connolly did. acknowledge issues with cost, complexity and portability. The Brookings Institution's Iwry questioned whether portability could ever be achieved with so many different solutions, while Principal's Cimini quipped that people can't and won't transfer their DB benefits when they change jobs—they can not be able to keep the same investments—so why should we look for guaranteed income solutions?

Overall, with a shortage of high-quality labor resulting in reduced services for all sectors, the question is how to survive when prices are flat or falling as customers demand more. 401Go's Beck, who comes from a consumer e-commerce industry that “enjoys” 2-3% margins, suggested the industry needs to become more efficient while Connolly said TPAs ​​could be a solution if we enable them as must with technology.

A long-established non-Roundtable provider was said to be rebuilding its registration system, allocating $500 million to the project, while fintechs such as Vestwell, 401Go, Betterment and Guideline have not only built systems of new, but they have reprogrammed the entire process focused on integration and payroll data.

So while the future is bright for 401(k) record holders, the challenges are just as daunting, which will lead to more consolidation, a topic that didn't come up along with the litigation. Who will not only survive, but win? Perhaps the Roland Garros quote prominently displayed at the French Open recently is German. “Victory belongs to the most persistent.”



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