The financial services industry moves at a snail's pace, set up to resist change and repel outsiders. The last major disruptors were Charles Schwab and Vanguard Group's John Bogle, both very old men now.
But the 401(k) world is about to change that paradigm as retirement becomes even more important to employees, companies, politicians, advisers and providers. As Bob Dylan warned in his seminal 1964 song, "You better start swimming or you'll sink like a stone 'cause the times they are a changin.'"
So what changes can be expected in the next one to three years? Below you'll find the likely changes broken down by retirement sector.
• Legislation that creates "open" multiple-employer plans, leading to more workplace retirement plans but fewer plan sponsors.
• Plan sponsors will "wake up," becoming more sophisticated and discriminating when it comes to selecting products and providers — including greater scrutiny of plan advisers and their role.
• Broader integration of retirement and other employee benefits, starting with health savings accounts.
• Employers' senior management will finally be more engaged with retirement benefits in order to recruit and retain employees due to historically low unemployment rates.
• The need for more employee education and training of plan administrators on fiduciary responsibility will continue to grow.
• The workplace will become employees' financial center.
• More focus on cybersecurity.
• More plans become automated (automatic enrollment and auto-escalation).
• More fiduciary outsourcing.
• More litigation.
• Growing demand for transparency.
• Increase in the number of retirement-plan specialists, with fewer nonspecialist ("emerging") advisers.
• Rise of platforms automating or simplifying fiduciary functions, the so-called "robo-fiduciaries," and the demise of "Triple-F" advisers focused solely on fees, funds and fiduciary services.
• Asset-based fees will decrease.
• Integration of wealth management and retirement.
• Integration of retirement and other employee benefits, as well as risk management.
• Growing need for business management training and succession planning for lead advisers.
• Less use of broker-dealers and a further shift toward the RIA model.
• Adoption of multiple employer plans, or MEPs.
• Further consolidation of advisers, leading to the growth of RIA aggregators.
• Greater need for access to plan data and participant data — which includes the plan and outside assets — from record keepers.
• Greater threats from artificial intelligence, not robo-advisers.
• Less financial support from plan providers.
• Greater use of collective investment trust funds to create customized products.
• Discretionary, or 3(38), investment fiduciary services will grow.
• Market downturn will attract more high-level wealth managers to 401(k)s.
• More advisers sued.
Distributors (broker-dealers and RIAs)
• Growing number of hybrid advisers.
• Challenge to serve and retain retirement-plan specialists.
• More focus on risk management.
• Litigation will hit distributors and their advisers.
• More centralized decision-making.
• Greater use of MEPs.
• Independents struggle more than wirehouses and specialty RIAs.
• Fewer providers used.
• Continued consolidation puts a focus on winning versus surviving.
• Greater use of technology to lower costs, putting pressure on smaller providers.
• Search for new revenue sources continues, similar to the airline industry with baggage fees.
• Margin pressure continues.
• Focus on cost of small-market distribution.
• Focus on MEPs.
• More focus on aggregators and specialists at the expense of traditional B-Ds and emerging advisers.
• Focus on cybersecurity.
• More proprietary products used.
• Growing use of professionally managed products like target-date funds.
• More distribution focus on aggregators and specialists at the expense of less-experienced advisers and generalist B-Ds.
• Greater integration of retirement wholesalers with retail wholesalers to streamline distribution and due to pressure on the cost of distribution.
• Margin pressure.
• Focus on retirement income.
• Move to clean shares.
• Greater use of CITs to cut costs and co-create products with record keepers and advisers.