Technology is essential component of growth

Retirement plan businesses that ignore this necessity will be left behind

Mar 23, 2019 @ 6:00 am

By Fred Barstein

As the defined-contribution practices of financial advisers grow, so do the challenges. But advisers and their staffs are not properly equipped or trained to deal with many of those challenges. They include running a business rather than only a practice, which entails managing people and operations. But a growing component of being a successful and effective retirement plan business involves managing and leveraging technology.

Most plan adviser firms are not tech-savvy and cannot hire the right staff. Yet incorporating technology to manage a retirement business and help plan sponsors and participant clients is not a luxury — it is a necessity. Those who ignore that necessity will be left behind, as will their clients.

There are three areas where technology affects plan advisers and their clients

  • Financial literacy and wellness
  • • Plan administration and

  • cybersecurity
  • • Internal operations

    Huge social experiment

    The entire DC industry is a huge social experiment. The concept of retirement is relatively new, having started in earnest after World War II, when people began living long enough after leaving the workplace to care about it.

    Retirement initially meant relying mostly on corporate pensions, if the retirees were fortunate enough to have one, and Social Security. DC plans like 401(k)s, which have grown dramatically at smaller firms since the 1990s, shift the liability to individual workers, who are ill-equipped to handle it. Most small to midsize employers have not stepped up, leaving providers and advisers to help.

    But of the almost 90 million DC participants, 87 million cannot afford an adviser because they do not have enough assets. Yet DC plans offer a huge opportunity because not only are these 87 million investors aggregated, with data about them readily available, they are now expecting to get their financial needs taken care of at work.

    Enter technology-enabled solutions offered by the employer, record keeper, adviser or fintech company. Financial wellness is all the rage and is seeing a great demand from employers, but most solutions have not proven to change behavior. And until someone is willing to pay for it, how can it be considered real?

    It's more likely that artificial intelligence, which assigns people solutions based on their needs, will be the answer, just as the auto-plan is improving participation and deferral rates. But AI requires big, clean data, setting up a battle between record keepers and advisers over who owns the data, while potentially opening the door for new entrants like Amazon and Facebook that are able to get data directly from participants or through other sources.

    Antiquated systems

    Record keepers and TPAs have done a fairly good job of managing complex ERISA plans with lots of smaller accounts. Gone are the pretenders, with another wave of record-keeper and TPA consolidation about to force out fringe providers. The main issues are antiquated systems that are difficult to manage and update, and unable to spit out relevant, clean participant data.

    Advisers need to know which providers will survive and which ones are truly capable of protecting client data from hackers, which is a growing issue for plan sponsors. They also need to know which providers are managing data so that it can be used by AI technology and which ones are willing to share. Finally, 360-degree payroll, in which data from record-keeping systems, such as changes in deferral rates, automatically upload to payroll,may seem mundane, but not all providers can offer it, which is a huge impediment for automatic features.

    Participant outcomes

    Research indicates that elite plan advisers are currently focused on improving customer relationship management systems and better leveraging outside tools, especially mobile technology. They also intend to find ways to use technology to measure participant outcomes, which entails, in part, getting access to participant data from record keepers.

    Advisers are already leveraging technology for the basics, like investment due diligence, record-keeper fee benchmarking and requests for proposals, as well as for benchmarking their own fees. They appear to be successfully getting plan-level data from record keepers.

    Incorporating robo-advisers or creating a client-centric dashboard are not high on their radar. Nor are they likely to use technology to automate compliance or prepare for an audit, or to adopt financial wellness apps or calendaring software.

    Advisers realize that they must hire people with complementary skills, such as those who have social media and content marketing experience or who are tech-savvy. Yet until firms get to critical mass, it might not be possible to hire full-time people, which means that they must find credible and dependable third parties to help, which can be hard to find and even harder to manage.

    But ignoring technology is not an option for firms that want to stay competitive and keep up with client expectations.

    Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University.

    0
    Comments

    What do you think?

    View comments

    Recommended for you

    RIA Data Center

    Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

    Rank RIAs by

    Upcoming Event

    Sep 10

    Conference

    Denver Women Adviser Summit

    The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

    Featured video

    Events

    These are the federal and state rules that will most impact 401(k) advisers

    Will Hansen, chief governmental affairs officer for the National Association of Plan Advisors, discusses regulation and legislation poised to have the biggest impact on advisers.

    Latest news & opinion

    IBDs with the most CFPs

    How many of the more than 83,000 certified financial planners are employed by the big independent broker-dealers?

    InvestmentNews announces 2019 Innovation Awards winners

    Sheryl Garrett is this year's InvestmentNews Icon.

    Morgan Stanley rides wealth management train to solid first quarter

    Chairman and CEO James Gorman expresses excitement about expanding into workplace plans with purchase of Solium.

    Fate of New Jersey fiduciary standard could come down to politics, court

    With strong support from N.J. Gov. Phil Murphy, the proposal has momentum out of the gate.

    Growing wealth fuels demand for family offices

    The market for serving wealthy families may be bigger than some data suggest.

    X

    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.

    X

    Subscribe and Save 60%

    Premium Access
    Print + Digital

    Learn more
    Subscribe to Print