Will Wealth Advisors Ever Care About The 401(k) Plan Business?

At a recent SPARK conference, a panel discussed what the defined contribution industry can do to attract the hundreds of thousands of wealth managers who are attempting or stumbling into either a 401(k) or 403(b) plan but not interested in one have specialization.


With the explosion of start-up plans by smaller companies due to government mandates, potential tax incentives, the rise of PEPs/MEPs/GOPs, and the increasing importance of 401(k) plans that employees are now expecting, it only makes sense that Financial advisors who have relationships with the business owner or manager are best placed to help.

However, regulations, liability, and potential fiduciary status mean broker/dealers are extra cautious, making 401(k) plans complex. Startups and small plans with limited assets are not attractive to wealth managers, who may be asked to help people they really don’t want to talk to. And beyond investment, few amateurs and blind squirrels know or care to know or want to know anything about ERISA.

The panel, moderated by Envestnet’s Sean Murray, included the heads of pensions at UBS and fi360’s Raymond James and fi360’s John Faustino, and discussed ways to attract wealth advisors and break down barriers. I noticed that we basically try to make it easy for the consultants to travel to a place they don’t actually want to go.

Most broker/dealers have a strong incentive to include financial advisors in DC plans. UBS claims to have 50,000 wealth clients who control or influence a DC plan but manage none of them, which is typical. Envestnet works with broker/dealers through the acquisition of 401,000 plans and access to 110,000 advisors in their TAMP to streamline the onboarding of new plans and provide 3(38) investment protection while other 3(16) services either offer via a PEP or solo. Envestnet will highlight wealth opportunities in plans that advisors may already be managing via Yodlee and other technologies to encourage them to complete additional plans.

Wirehouses tend to force amateurs and blind squirrels to work with specialists, while independent broker/dealers tend to offer home office support to non-specialists.

But let’s get real. Is that enough?

Will financial advisors accept the services of 3(38)? Investing is the only part of DC’s plans that they’re comfortable with. The addition of 3(16) administrative escrow services increases the cost of a low margin business, even within a PEP. Retirement plan advisors don’t want referrals for small plans, especially if they have to share fees. Pension funds at independent b/ds struggle to maintain adequate resources as 90% of assets are withheld and the ability to track participants’ earnings is limited.

I really hope I’m wrong because the ideal situation would be for these financial advisors with relationships that support the client’s 401(k) plans to collaborate with all stakeholders and leverage AI, data and technology. Maybe younger consultants without established books are interested, but they don’t have the connections yet.

More likely, clerks, especially payroll clerks and others who can sell assets and benefits while keeping administrative and distribution costs down, will step in. Some of the fintech record holders, particularly those who work with payroll companies like Guidelines and Human Interest or those who back B/Ds like Vestwell, are winning a lot of new plans, mostly start-ups. But there’s a reason they need hundreds of millions of venture capital and private equity investments to stay afloat.

It’s basically like being offered a weekend getaway to downtown Newark, with all due respect to the locals. I’m sure Newark has many great attractions and I appreciate the effort being made to make it easier to get there, but I’m not sure what I can be offered for leaving Jupiter, Florida, especially in the winter .

Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.


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