WealthManagement.com report catalogs obstacles to advising 401(k) participants

Convergence between retirement plan advice and wealth management at the workplace keeps gathering momentum, and the WealthManagement.com report on the obstacles facing it begins with the two forces pushing the trend forward. Plan fees that advisors and record keepers collect have been declining for years, which makes offering wealth services and financial planning to participants an obvious, if not easy, additional revenue source. At the same time, a growing number of plan sponsors are demanding that their advisors and providers offer holistic financial advice to all employees rather than cherry-pick the wealthy.

The report's list of hurdles is long, and for a practice weighing the build, the useful thing about it is where the items land. Almost all of them sit in the last stretch between holding a plan relationship and holding the participant relationship that would follow it, and they come in two kinds: the plumbing that moves data, and the humans who would have to sit down with participants. Only one side of that list has a vendor answer attached to it.

Most broker-dealers and RIAs do not get frequent data feeds from their record-keeper partners, according to the report, and just a handful of firms have a dashboard that lets them oversee every plan and participant under management by their representatives. No standard format exists for plan or participant data, so whatever does arrive has to be handled plan by plan. Record-keeper technology, some of it dating to the 1990s, inhibits innovation and the integration of third-party applications, and that is where the report's one concrete change agent sits: the recent release of FIS's cloud-based versions of Omni and Relius, cited as something that could change the integration picture.

A dashboard of that sort looks like a scale purchase, which would explain why the report finds the feeds and the oversight tooling concentrated in a small number of firms rather than spread across the independent end of the market.

Access is not only a matter of pipes. Some providers do not want to offer participant data and would rather engage participants themselves, the report says, and convergence creates potential competition between advisors and record keepers for the same account. Read from the advisor's chair, that is a relationship question before it is a technology question: the firm that already holds the participant's account and already mails the statement has its own claim on the relationship. The report's remaining cautions about data follow the same logic, covering volatility, the need to protect participant information, plan sponsor permission that may be required given recent litigation, and data needs beyond what is currently available to provide holistic advice.

The harder set of obstacles is human, and the report states it flatly. It is extremely hard to engage participants, and most experienced retirement plan advisors and wealth managers alike do not want to meet with them. Most advisors, along with many broker-dealers and RIAs, have not built and trained a cadre of financial coaches to do that work, and the report distinguishes coaches from salespeople in making the point. That distinction carries the practical weight. A coaching capability is a hiring, training and supervision program with its own cost structure, and it is the piece of convergence that a software release cannot supply.

There is arithmetic behind the reluctance. Most employees and participants in defined contribution plans do not have enough assets to attract advisors using traditional methods, according to the report, so a participant service cannot be underwritten by near-term assets under management. That leaves the decision to the firm's own economics: whether participant advice is a cost of holding on to the plan relationship or a service line expected to cover its own payroll. Those two answers imply very different staffing, and the report does not price either one.

On the supply side, broker-dealers have become more interested in supporting their representatives' efforts to offer wealth services to DC participants, the report notes, but traditional wealth services remain more profitable, and ESOPs give an advisor a way to find prospects without having to deal with ERISA at all. The crossover runs more easily in one direction than the other. A wealth advisor can add plan-level services more readily than a retirement plan advisor can add wealth, because ERISA plans are complicated, and for a retirement plan advisor with no wealth capabilities the report describes partnering with RIAs as difficult.

The variable to watch is the FIS release. If cloud-based Omni and Relius do make third-party integration easier, the plumbing stops being the first obstacle an advice practice has to clear, and what is left is the question a platform upgrade does not touch: who pays for a person to sit down with a participant who has little to move, and for how long a firm is willing to carry that cost.