401(k) data-sharing one step closer, thanks to Spark and DCIIA

Data may be the new currency for the defined-contribution plan industry, but a common format to share information about plans and participants has faced hurdles

The defined-contribution industry has been slow to work together to efficiently share plan data and especially participant data for a host of reasons. As a result, the system is less efficient than it could be — the industry has been slow to help participants save and invest. It has also been slow to monetize those participants.

But there is hope that all the constituents will come together in a new initiative by the leading record-keeper association, the Spark Institute, and the Defined Contribution Institutional Investment Association.

The 401(k) and 403(b) industry has been trying for over a decade to create a plan data file format that would bring enormous efficiencies to everyone. Meanwhile, record keepers have had to cater to the individual needs of larger broker-dealers to create custom plan data file formats, which can change regularly, costing significant resources.

Broker-dealers need plan data to see which plans are being managed by advisers in their network, especially for compliance. Advisers would like to have a dashboard that shows data from all plans across multiple record keepers, to manage their books of business and easily see which funds are being used within each plan. Investment providers are desperate to get plan data, so they can properly compensate their wholesalers.

So what’s the problem? Mostly inertia, but also a lack of leadership. It’s hard to get all record keepers and distributors to come together to agree to anything. And the vast majority of these companies have to agree on a file format, because starting with just a few does little good. There are hurdles around who pays for the build; the scope of the data fields; and who owns or gets access to the data. Data aggregators like Envestnet have been trying to take the lead, but plan providers have been reluctant to help build a private and potentially costly solution.

The natural leader for bringing efficiencies to data-sharing is Spark, because everything starts and stops with record keepers. DCIIA and Spark have been cooperating on research and conferences, so working together on technology seems to make sense. They convened a high-level summit in 2019 on the use of blockchain for DC plans, and they held a similar meeting at the end of last year on data-sharing.

As a result, Spark and DCIIA convened a meeting in late 2019 to discuss whether to create a consortium that would include all providers and distributors working together to develop an expansive plan data file format that would be revised as needed. A request for proposals is planned for the end of the year, after issues around governance and format are ironed out.

That development is huge, said Tim Rouse, executive director of Spark. But perhaps even bigger is that for the first time, record keepers seem open to using the plan file format to create a platform for sharing participant data.

There are many issues with sharing participant data, such as privacy, access and cost. But until this information is widely available and shared among providers, distributors and advisers, there’s little hope to help participants who cannot afford a traditional adviser. And there is little hope of monetizing participants in the plan.

If advisers don’t have access to real-time, smart data, financial wellness will have limited impact on participant behavior. Record keepers that are willing to share participant data with advisers will be putting the interest of participants first. Those that hoard it will alienate the retirement plan advisers focused on DC plans, as well as wealth managers looking to leverage their access to plan participants.

Let’s all hope that the Spark and DCIIA effort to create a common plan level file format works and eventually leads to sharing participant data. Otherwise, the industry will be seen as self-serving, while opening the door for data aggregators from other industries that realize data is the most valuable currency in a digital world.

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