Most retirement plan advisers work with dozens of record keepers because it's easier not to force new clients to change their 401(k) record keeper when the plan adviser is hired. But it's hard for plan advisers to manage working with so many providers.
While consolidating their provider roster makes sense, the reality is that few advisers are taking major steps in that direction for practical reasons, and even fewer record keepers are focused on helping.
Robos like Vestwell are betting on this trend by trying to facilitate consolidation, but traditional plan advisers are slow to adopt new providers.
So what are the inhibitors to consolidating providers, and what practical steps can advisers take now?
Plan advisers having dozens of provider relations is like frequent flyers using multiple airlines and getting status on none: no upgrades, no sky clubs, no early boarding, no free trips, and being stuck in middle seats on cross-country trips.
For plan advisers, working with dozens of providers means lower levels of service, more time spent on due diligence, and less integration between the record keeper and the adviser. In an era in which adviser plan fees are dropping, business efficiencies are no longer a luxury.
But plan advisers face some natural barriers to consolidating their roster of providers. The time, money and staff resources required are in short supply, and moving plans does not result in more revenue.
In addition, plan sponsors might be happy with their provider, even if the adviser only has a few plans with the record keeper. At best, the adviser would not be serving the interests of their client by changing their provider; at worst, it could be a fiduciary breach.
Some plan advisers are taking steps to consolidate their book of business with help from a few providers, mostly with smaller plans.
Jim O'Shaughnessy, practice leader at Sheridan Road, which was recently acquired by Hub International, admits that the need for consolidation has never been greater, especially when a firm has offices around the country. Sheridan Road's white labels with Empower and Principal are working well but even with almost 300 plans, the number of plans the firm has with each provider is limited. And while Mr. O'Shaughnessy is interested in robo record keepers, he's being cautious until they get to scale.
With almost 500 retirement plans but less than $100 million in AUM, Steve Austin of Apex Financial, who is a former Paychex wholesaler, is proactively reducing provider partners. He said robos like Vestwell are making it easier, particularly with their focus on lower costs and technology, issues that resonate with clients. Mr. Austin also noted that advisers need a business process, especially if they are growing quickly, with consolidation a key component.
Kris Gray, founder of Integrity Financial Corp., is looking for providers with integrated technology. While he realizes that consolidating partners for his almost 750, mostly smaller plan sponsors makes sense, he admits that it is more of a process than an event. Mr. Gray also works with Vestwell, which he says is eager, hungry and willing to help with a tech culture that is constantly evolving.
Barbara Delaneyof StoneStreet Renaissance and Chad Larsen of MRP are trying to reduce the number of providers they work with, but the process is slow. Mr. Larsen works with 21 record keepers over his 265 plans but is looking to reduce that number to 15 in three years. He noted that plan sponsors resist changing providers but cost can be a driver.
Mr. Larsen and Ms. Delaney both admit that they have to show that it's better for the client and say they are more likely to work with traditional record keepers than robos.
Record-keeper consolidation will naturally help advisers limit partners as more deals like the Wells Fargo-Principal sales are inevitable. Multiple employer plans will further accelerate consolidation of advisers' books of business clients aggregate their plans for better pricing and service.
But, like most things in the 401(k) world, change takes time, with advisers who are part of larger groups like Hub leading the way given their additional resources to move clients and greater clout with providers.