The value of a 401(k) participant, quantified

Who deserves to service and monetize the participants? The answer to that is whoever works the hardest, within the limits of the law, in a professional, conflict-free manner.

At a recent GRP Advisor Alliance conference in Alaska, much of the talk was about how to help and monetize 401(k) and 403(b) participants. Brad Arends, CEO at Intellicents, has quantified the potential.

But the talk quickly turned to potential conflicts with record keepers that have the same interest. The questions are: Who owns the participant data? And who deserves to service them?

I asked those questions of the audience, which was mostly elite retirement plan advisers but also included lawyers and professionals at fintechs. The answers were across the board.

For me, participants own their data. This was highlighted by the settlement of a lawsuit against Columbia University that stipulated that the plan’s record keeper could not solicit for non-record-keeping services unless specifically requested. California’s data privacy law puts individuals in charge, though it carved out a different approach for employee benefits. Plan sponsors have a duty not just to protect the data, especially from hackers, but also their employees. Record keepers have a duty to protect, organize and store the data — but just because they have it doesn’t mean they own it.

Who deserves to service and monetize the participants? The answer to that is whoever works the hardest, within the limits of the law, in a professional, conflict-free manner. I have no patience with RPAs who rail against providers that go after participants, whether for rollovers or wealth management, but have no ability or take no action to compete. WTF?

The issue arises because RPAs feel betrayed when they bring a plan to a provider and then the provider solicits the participants. We get what we deserve. If RPAs could, they would record keep the plan themselves. But even the largest defined-contribution aggregator, Captrust, couldn’t effectively run a small record keeper it bought as part of a larger acquisition in the Detroit area.

Record keepers are better positioned in some ways, because they have the technology, data and brand power. The websites and communications have the provider’s brand all over it.

RPAs have an advantage because they have relationships with the plan sponsors and participants, if they work it. As Grant Arends, president in charge of Intellicents’ retirement group, advised, RPAs need to get their brand in front of participants over and over. But how?

RPAs can only work with record keepers that do not go after the participant. The issue is that providers that make so much money from either proprietary assets or ancillary services can afford to invest more and charge less, and are most likely to survive the brutal consolidation trend.

Just as RPAs can use third-party services to analyze funds or benchmark fees, there should a private-label website branded by the RPA to which all participants are directed and that hooks into the record keeper. Because record-keeper technology is so frail and antiquated, it’s hard to bolt on new apps. But this ubiquitous branded front end can include all apps, like the Apple Store, and the RPA and plan sponsor can choose what needs to speak and share data with the record keeper’s system.

Getting record keepers to share data en masse is a long and losing game. But not one plan or book of business at a time. Lao Tzu wrote, “A journey of a thousand miles begins with a single step.”

Intellicents found that the average value of a participant, including group insurance, retirement and wealth management, is $283 per month or $3,395 annually, with retirement the lowest at $16 per month, benefits at $17 and wealth at $250. At the high end, the average is $1,790 monthly, and at the very low end, it’s $49. To get to $1 million in revenue, you only need 295 participants if you sell wealth management, benefits and retirement. Only 2,946 participants are needed to get to $10 million in recurring revenue, according to Intellicents. But that’s if you sell everything to all employees, which is more potential than reality.

Though retirement services have the lowest margins, and RIAs and benefits brokers make more per client, RPAs have unique access to participants and C-suite executives. The worksite retirement savings platform has the greatest fiduciary oversight, providing RPAs with instant trust, because they were chosen by the employer. RPAs are well positioned, but only if they work for it and start acting as a business person, not a practitioner, either as part of a group or consortium — just as the record keepers do.

[More: PEPs are here. But how successful will they be?]

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’ RPA Convergence newsletter.