401(k) World: Retirement Plan and Wealth Advisement

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According to surveying done by T. Rowe Price, 100% of large retirement plan advisories are now providing wealth management strategies to plan participants. According to some in the industry, that trend is likely to continue in coming years as participant wealth management needs grow.

Offering both plan advisory and wealth management services makes sense from several perspectives, including higher profit margins than plan advisory work, according to the T. Rowe report. But it is also a growth path for plan advisers, says Peter Campagna, a Nevada-based partner in the Wise Rhino Group. He notes that having existing relationships with sponsors facilitates cross-selling of additional services because the companies’ decisionmakers know the vendors.

Convergence also fits with the ongoing shift to personalized advice, Campagna adds. Defined contribution plans have evolved “beyond just a menu and a QDIA choice” as participants search for more personalized, holistic financial planning. He says it makes sense that participants want this customized advice, and approaching them through their 401(K) plan is credible and efficient.

Troy Hammond, CEO of Pensionmark in Santa Barbara, California, agrees that plan sponsors and participants want access to wealth management services. But it was not always so: The need has evolved over time along with the defined contribution space.

Pensionmark focused on participant services from its inception as an institutional plan consultant 30 years ago, says Hammond. The firm’s wealth management business grew from participants’ desire for help managing their finances. Not all sponsors want a combined service, and he adds that Pensionmark presents wealth management as an option to plan sponsors.

Meanwhile, mergers and acquisitions continue bringing retirement planning and wealth closer together, and most industry actors are no longer asking if convergence is a good idea, but how to best do it to meet growing demand.

Jania Stout, a senior vice president of retirement services at OneDigital, noted on a recent PLANADVISER webinar that she had resisted adding wealth management to her practice until she felt the client need was too great and she did not necessarily trust the managers she was sending her clients to. She recalled, in particular, a moment when a colleague noted to her that, if she wasn’t prepared to offer wealth management options, she would be turning away longstanding participant clients at a time when they might need her most.

“Hearing it that way, I started to believe that I was wrong,” she said during the panel session. “I needed to continue to help those employees, and if I didn’t, who knew who would? It wouldn’t be such a great adviser if it wasn’t someone from our team. We are now fully embedded in the wealth side of the business as well.”

That same panel of experts, however, noted the challenges of having the staffing and resources to serve both retirement and wealth—with Stout, an award-winning adviser, noting scale as one of the reasons her firm joined OneDigital in 2021.

Small Accounts, Big Need

That staffing concern goes both ways, as wealth managers are also figuring out how to manage client accounts with fewer assets, says Jamie Hopkins, a senior vice president and director of private wealth management with Bryn Mawr Trust in Bryn Mawr, Pennsylvania.

“The reality is a lot of the RIAs and wealth managers out there don’t want to serve accounts with under a $100,000 or $200,000,” he says. “Unless you have a brokerage or simple investment plan management system out there, it’s really hard to service that group.”

“The reality is a lot of the RIAs and wealth managers out there don’t want to serve accounts with under a $100,000 or $200,000,” says Jamie Hopkins, a senior vice president and director of private wealth management with Bryn Mawr Trust. “Unless you have a brokerage or simple investment plan management system out there, it’s really hard to service that group.”

But sponsors, according to Campagna, are increasingly looking to provide more robust wealth management services to participants. He maintains that technology can provide the scale and cost efficiency required to service less wealthy participants profitably, but it should be a combined service offering.

“You can’t just say, ‘Alright, go talk to the app,’” he says. “That’s not enough. It should be a little bit of a personal interface and a lot of technology to help them answer their questions, which probably aren’t that complicated. If someone has a little more retirement savings and maybe other financial situations, I think it turns into something like a 50/50 [personal advice and technology].”

Hammond agrees it is a logical business model for many wealth managers to focus on wealthier participants because that group’s assets generate higher revenue and present more service opportunities. In contrast, servicing participants with smaller accounts is “a tough space to make money in, and you have this balancing act of wanting to make sure you’re delivering a premier service, but that premier service is expensive,” he says. “How do we charge enough with these smaller asset pools?”

Pensionmark’s solution is to invest extensively in technology and home office staff to provide a centralized, low-cost service for participants with smaller balances. Managing and servicing those accounts with a home-office platform enhances investment management for participants, increases advisers’ efficiency and frees up their time, Hammond says: “It’s not like we’re going to build an empire on that business, but there is a margin there, and we can make it work.” That approach “allows us to serve everybody, which, philosophically, is how we approach this,” he adds.

Conflicts of Interest?

Naysayers do remain, arguing that plan advisers can run a robust practice without wading into the potential conflicts of interest that exist in selling higher-fee wealth management services. Mike Francis, president of Francis LLC in Milwaukee, argues that wealth management services can present conflicts of interest, and plan advisories can run successful businesses with a fee model similar to an accounting firm or law practice.

“We’re very focused as an organization,” he says. “We offer investment consulting and plan consulting services to qualified plan sponsors. We also offer what I’ll call financial wellness services to those same organizations’ employees.”

Francis tells clients and prospects that his firm is always an ERISA fiduciary when dealing with sponsors and participants. That approach has been a fundamental value proposition for the firm since its inception. The result is that sponsors can be confident about giving Francis LLC access to employees, he says. Sponsors “know that we are truly sitting on their side of the table with nothing to sell; we’re strictly there as an ERISA fiduciary investment adviser.”

Hammond of Pensionmark, however, says both can be true, with his firm acting a fiduciary firm to all its clients.

“By being a fiduciary on both sides of that coin, we’ve always had to implement procedures and processes to ensure that we are complying with all of the regulatory requirements and that we are addressing all of those potential conflicts of interest,” he says. “I think you’ll find that most of the larger firms like us that are converging wealth and retirement are going to put a lot of energy towards that regulatory compliance. As long as you cross all the T’s and dot all the I’s and have all the processes and procedures in place, you can address those [conflicts].”

“I think you’ll find that most of the larger firms like us that are converging wealth and retirement are going to put a lot of energy towards that regulatory compliance,” says Troy Hammond, CEO of Pensionmark. “As long as you cross all the T’s and dot all the I’s and have all the processes and procedures in place, you can address those [conflicts].”

During the February wealth convergence webinar, Craig Reid, president and national practice leader of retirement and wealth at Marsh McLennan Agency, a subsidiary of Marsh, said the convergence is ultimately serving a market need that advisories must address or be left behind.

“It makes it so much easier when you are managing both their retirement plan and their individual wealth: You can see a clearer picture, you can talk to your wealth partners or your retirement partners about what’s happening in or outside of the plan,” Reid said. “This is driven by customer demand, and technology is able to support the needs they are demanding today. … I think having both sides of the house at play answers the demand for a more holistic view.”

Next week, our PLANADVISER In-Depth series will consider recordkeepers and DCIO asset managers.