Retirement has become the lynchpin of complete advisory practices

Wealth managers risk losing key clients and sacrificing business leads if they don't work with 401(k) plans

Jul 11, 2019 @ 3:25 pm

By Fred Barstein

Few advisers started their careers focused on defined-contribution plans like 401(k)s. Most DC practices grew from either wealth management or employee benefits firms leveraging relationships to cross-sell DC plans. But that is changing, with retirement becoming the lynchpin of a successful and comprehensive advisory practice.

What happened, and why has retirement planning become so important?

Going from a niche industry that rarely got national attention, retirement has become a key political issue — whether because of the lack of 401(k) coverage for almost half of American workers or fiduciary concerns.

Eighty million baby boomers are expected to retire over the next 20 years and live longer, millennials are not confident Social Security will be available when they retire, and the sandwich generations struggle to save for their retirement while paying for their kids' college and supporting their unprepared parents.

(More: Positioning can help 401(k) advisers boost sales)

In addition, workers who cannot afford a traditional financial planner (or do not want one) are relying on their employers to help with all financial issues like student debt while the booming fintech industry sees the workplace as an ideal place to digitally access clients.

Wealth managers, most broker-dealers and registered investment advisers, and employee-benefits brokers traditionally eschewed low-margin and high-liability DC plans. The 2008-09 Great Depression started to alter that perception as plan participants kept contributing to their 401(k) and 403(b) plans, showing the power of automatically deducted payroll plans. Health-care reforms have forced benefit brokers to start looking for additional revenue.

But there were still fiduciary concerns about cross-selling wealth management and financial planning to participants, and declining DC advisory fees still kept many benefits firms from jumping in.

Retirement plans, financial literacy and wellness have become key issues for many organizations in part because of concerns about employees' welfare, reduced worker productivity resulting from financial stress or the long-term viability of carrying expensive older workers who are unable to retire. And historically low unemployment rates have made recruiting and retention key strategic issues, with retirement plans becoming an essential benefit especially for younger workers.

For retirement plan specialists, it is game on to cross-sell wealth management and financial planning to participants in their DC plans. Captrust, for example, is aggressively buying wealth management firms in territories where they have retirement specialists. Driven by declining plan fees, savvy specialists are more than making up for it by charging for one-on-one advice and leveraging wealth management opportunities.

On the other hand, wealth managers are starting to realize that it's easier to find new clients within the few retirement plans they took on to accommodate and protect important clients. They also realize that as the plans grow up, specialists are likely to poach the plan, and potentially the key client.

Most traditional benefit firms, which grew into that area through their property and casualty insurance practices, still view retirement as a stepchild and their plan advisers as "zoo hunters" selling low-margin, high-risk products. But others like NFP and Hub International see retirement plans as a means to access new clients for their higher-margin products.

One of the most profitable advisory practices I know has fully integrated wealth management, health-care and retirement capabilities with seasoned professionals heading up each practice. But the lead adviser focuses on retirement, using it as the way to generate more that 90% of the leads for the other areas. Retirement is the firm's lynchpin, with the other practices increasing margins and giving this firm an unfair advantage with multiple entry points.

Firms with capital and vision like Captrust, NFP and Hub get it and will aggressively recruit advisers supplying them with resources, training and technology, and feast on those that stay siloed, clothed in denial about how the world is changing.

Fred Barstein is the 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

Oct 22


San Francisco 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


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