Wealth managers ignore 401(k) plans at their peril

Wealth managers may scoff at 401(k) clients but they become susceptible to losing current clients as a result

Mar 14, 2019 @ 10:15 am

By Fred Barstein

Many wealth managers and financial planners who never intended to focus on the 401(k) or 403(b) market might nevertheless have a few plans. Most are just accommodating an important client and, at best, view the plan as a distraction. At worst, it's a royal pain, since they must deal with so many unsophisticated investors with low account balances as well as the fiduciary liability under the Employee Retirement Income Security Act.

But these advisers should pay more attention to corporate retirement plans even if they never want to become a specialist.

(More: The 10 biggest threats for retirement plan advisers)

The so-called "accommodators" in the defined-contribution industry might have a client who owns a business or is a high-level executive who asks the adviser to help manage the organization's retirement plan. Many smaller business executives or owners do not want to have to find and deal with an extra adviser, instead relying on those they already know and trust.

As the DC retirement plan matures and gathers more assets, it becomes more attractive to retirement plan specialists. These specialists might convince the powers-that-be that they should fire the current adviser because they are not meeting with employees regularly, providing proper fiduciary protection for the organization, helping with plan design or making sure the plan is running smoothly. Not to mention that fees may be too high.

Pretty compelling arguments.

And wealth managers might think, "Who cares? I don't make that much from the plan and I don't like working on it anyway." Also compelling.

But the loss of the retirement plan may also put the wealth manager's client at risk, especially when the specialist adviser explains what the wealth manager was or was not doing to help and protect the organization and its employees, causing unnecessary risk, cost and work. Over time, that client might decide to switch personal and corporate assets to the retirement plan specialist.

(More: Convergence of retirement planning and employee benefits is here)

Taking a more positive spin, being a plan adviser provides access to many investors who will never meet another adviser. Many are not attractive clients, granted, but some may have unexpected assets from an inheritance or sale of property. Many older workers have significant account balances that they will likely roll over. Plus, there may be more high-net-worth prospects than you think.

And when the next recession hits, wealth managers will realize that, even though account balances shrink, these 401(k) participants keep investing through the automatic payroll deduction, unlike their wealth management clients.

(More: What type of fiduciary should retirement plan advisers be?)

Becoming knowledgeable about 401(k) and 403(b) plans does not take that much time or work, especially with automated tools and the help of knowledgeable record keepers and third-party administrators. Plus, new fintech tools can help advisers reach and manage less sophisticated investors that advisers cannot afford to meet with regularly.

So stop grumbling about those "dumb" investors in the 401(k) plans that you really didn't even want to begin with, and start paying attention — even if you do not want to become a specialist. There are opportunities to get high-net-worth, financial planning and IRA rollover clients while protecting the clients who asked you to help them in the first place.

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.


What do you think?

View comments

Recommended next

Upcoming event

Nov 13


Top Advisory Firm Summit

Formerly known as the Best Practices Workshop, this new one-day conference will also include content from the Best Places to Work event!The Top Advisory Firm Summit will provide CEOs, COOs, CTOs, CMOs, and Managing Partners from the... Learn more


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print