401(k) advisory firms creating in-house financial wellness programs

Clear benefits for advisory firms, but some think advisers may be ill-equipped to deliver financial wellness and see potential conflict

Jun 19, 2018 @ 3:19 pm

By Greg Iacurci

Large retirement-plan advisory shops are increasingly adopting their own in-house financial wellness programs as they look to capitalize on an emerging area of client demand, battle ongoing fee compression and try to stand out in a market that's commoditized traditional service offerings.

Firms such as Centurion Group, Resources Investment Advisors Inc. and AFS 401(k) Retirement Services, each with several billion dollars in defined-contribution-plan assets, have recently developed custom programs or partnered with third-party providers to offer such services to retirement-plan participants.

These wellness programs are aimed at helping employees improve financial well-bring, via education and advice on topics such as debt management, budgeting, emergency savings, college savings, and insurance and retirement planning. A number of providers, such as SmartDollar and Financial Finesse, have traditionally distributed such services directly to employers, but advisory firms' new programs allow them to distribute services through their advisers instead.

Just over 20% of 401(k) plans, primarily among the largest employers, have a financial wellness program in place, according to the Plan Sponsor Council of America.

But the concept is gaining traction, especially as research has pointed to greater workplace productivity among employers who are less stressed about their finances. Callan, a consulting firm, found an increase of roughly 8 percentage points in the number of employers who've adopted these programs since 2015. Further, "financial wellness" ranked as employers' top communication focus this year, up from a No. 5 ranking just last year, according to Callan.

"Clearly there is runway," Nathan Fisher, senior executive vice president of Fisher Investments' 401(k) Solutions business, said of the growth potential of financial wellness programs. "It's still pretty new."

Centurion, which advises on roughly $16 billion in retirement plan assets, launched its Centurion Financial Wellness Program in May, leveraging Financial Finesse as a third-party partner.

Resources Investment Advisors — a registered investment adviser affiliate of Bukaty Companies Financial Services, which oversees roughly $12 billion in DC assets — launched its custom-built Financial Elements program in April.

(More:FAANGS and other forces that could disrupt business for retirement plan advisers)

AFS, which has $1.8 billion in DC assets, launched its custom program, MoneyNav, toward the end of 2016. Like some other firms, AFS has also hired advisers solely dedicated to delivering guidance around financial wellness.

Pensionmark Financial Group, whose advisers oversee more than $50 billion in DC assets, also debuted a new financial-wellness service called SMARTMap earlier this year.

401(k) advisers get numerous benefits from making these programs available in-house. Advisers have been able to maintain or increase their fees for offering a financial wellness service, even as fees have steadily dropped among the broad industry. It also gives advisers a new value proposition as investment management and fiduciary services have begun to be commonplace offerings and somewhat commoditized.

"It will likely improve the percentage of times we 'win' the client relationship in a competitive situation," said Alexander G. Assaley III, managing principal at AFS.

Further, 401(k) advisers who also provide individual wealth management services have gained clients as a result of interactions with participants using the financial wellness offerings, advisers said.

There has been an increasing level of competition from retirement-plan record keepers, though. Most record keepers offer their own financial-wellness services to employers, and new entrants are coming to market. Securian Financial Group, for example, debuted one in February.

Some observers question if advisers are well-equipped to deliver this depth of financial guidance — beyond retirement plans — to employees, and say it may even be a conflict of interest to do so, especially for those gaining wealth-management clients as a result.

"It's absolutely a conflict," said Philip Chao, principal and chief investment officer at Chao & Co. "It's almost like I am getting carte blanche to come fish in your pond."

(More:SEC rule proposal doesn't include 401(k) sponsors in 'best interest' advice)

Although Mr. Chao said he generally supports the concept of financial wellness, he questioned if advisers implementing their wellness services with existing clients had conducted a full bidding process to identify that their service was truly in the client's best interest when compared with others.

"What makes you think, Mr. Adviser, that a firm of 10, 15, 20 people can do a better job than Prudential, Fidelity, T. Rowe, Vanguard, who have invested millions in their system to create financial wellness?" he added.


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