401(k) Transcript of Real Talk for July 24, 2024

Welcome to this week's edition of 401k Real Talk. This is WealthManagement.com Omnichannel RPA Contributing Editor Fred Barstein & CEO at TRAU, TPSU & 401kTV coming to you from sunny Jupiter FL- I Review everything from the past week's stories and pick out the most relevant and interesting ones offering an open honest and candid discussion that you wouldn't get anyway. So let's get real!

While most DC professionals think data storage is a low-margin business undergoing massive consolidation, no one told the PE firms that recently invested another $267 million in debt and equity financing in Human Interest, a leading fintech record holder. New money in one stunning $1.33 billion valuation brings Human Interest's total investment to $700 million hoping at some point to go public.

What do PE firms see in what some call an unsustainable business? We all know that DC plan administration needs to be simplified, which requires simple processing and modern technology, something that traditional providers struggle with, especially as small plans explode. Human Interest isn't alone with massive investments from PE firms Guideline, Betterment and Vestwell.

Beyond plan-level fees, the ability to cross-sell other services to participants on their platforms should be the silver lining that PE firms are seeing, which is also driving up valuations of RPA firms as well as holders traditional records. And while not all bets made by PE firms pan out, they are rarely directional.

Speaking of hot markets, many are predicting that AI will revolutionize the financial advice industry, but advisers, driven by compliance concerns, disagree.

According to a study of 595 firms by ACA, a compliance service provider, it is remarkable 64% have no plans to use customer-facing AI. Another 30% are exploring with only 2% currently using it.

So what is the future of AI in the financial services industry and for DC plans? Just as pure robo-advisors failed to live up to their promise, firms like Schwab and Vanguard that leverage existing people, brands and clients have become bigger “robos.” Although AI has greatly improved medical research, does anyone believe it will replace doctors?

As the DC industry strives to provide advice on measures at scale, AI can enable people at key recordkeepers and advisory firms that have clients and capital to help more data-fueled DC participants and could be a key component to increase adoption of in- retirement income plan.

Another group of 401k haters have come out of Wharton this time who propose a radically new system where contributions come from the government, not employers or employees, and only for workers aged 25-64 who are not claimed as dependents and have less than $10,000 in investment income.

Although discrimination testing is designed to ensure that the wealthy do not unfairly benefit, the results are that a significant percentage of assets are in their accounts.

Why are so many haters coming out of the woodwork proposing some form of a federal system + Social Security? Retirement in general and DC plans specifically are now sexiest with over 10,000 kids retiring every day and over $11 trillion in DC assets + $14.3 trillion in rollover driven IRAs. And while the intentions and efforts from the DC industry may be good, ultimately we will be judged by the results that the haters claim are lacking.

The top 10 stories affecting 401(k) and 403(b) plans so far in 2024 have been dominated by laws, lawsuits and M&A advisors. No longer in a shed, economics and societal pressures are causing the defined contribution industry to evolvesomewhat unfortunate, as retirement in general and DC plans specifically have become sexist.

The themes that run through the main stories are: