Having split my career across wealth management and retirement, I've been uniquely positioned to see how technology is opening up doors across the industry, especially for wealth-focused managers, to enter the retirement plan advice business. Here's the opportunity technology brings.
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About 98% of companies have less than $50M in retirement plan assets, and 92% of them want or have a financial adviser. Additionally, there are tens of millions of American workers who don't have access to a 401(k) at all. As a result, traditional retirement plan providers are now open to expanding "down market" despite historically avoiding this segment.
However, wealth advisers are arguably best positioned to swoop in and serve these plans given the natural extension of their existing client relationships.
The retirement plan market opens up a number of opportunities for advisers to build out their wealth business. For most individual investors, wealth accumulation starts by participating in a company-sponsored retirement plan. There is no need to wait until an employee accumulates "enough" wealth to seek individual advice. So, finding clients through a plan sponsor is a great way to establish a relationship. Fortunately, technology solutions make it easier for nonspecialists to offer quality plans and tap into this market.
The opportunity is not without challenges, however.
Legal requirements and plan design can be complex. Advisers can leverage technology to analyze workforce demographics and create a plan design that best fits their client's needs. The key is to create flexible standardization. So just as one recognizes patterns in wealth management client needs, one should apply that logic to offer unique plans to each client without constantly having to reinvent the wheel or overcomplicate plan maintenance.
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Cybersecurity and data privacy are critical. As plan fiduciaries, sponsors and advisers should perform due diligence by asking the right questions about a provider's security practices. For example, participant data should be encrypted at rest (stored in a database) and in motion (transmitted between computers or humans). Access to data should be on the principle of least privilege — all users should have their data access restricted to the minimum data they need to do their job.
Encryption keys for encrypted data and access credentials should be spread across virtual servers or purpose-built data vaults. Modern computing infrastructure no longer has physical "backup tapes" and disaster recovery sites, but instead, use encrypted cloud-based disaster recovery processes. Check the status of the provider's security audit and review their annual penetration test report results.
It's also important to remain unconflicted. ERISA was enacted to protect employees. Investment strategies and products made available to participants must be free from conflicts and cost-effective. Technology can be used to communicate with participants in "plain English" with transparent disclosure about direct and indirect compensation. Establishing trust with employees early can carry over to building a wealth practice with those same individuals, either before or after they take distributions from the plan.
Plans should be easy for the plan sponsor, its employees and the adviser. The plan design, onboarding, payroll processing, plan eligibility, and ongoing administration of a 401(k) plan should be 100% digital and streamlined. Employers and employees need to be able to make informed decisions about their retirement plan without having to become a guru. The right technology can help advisers drill down data and reporting to engage clients — and at scale. Alerts, chatbots, and nudging can all be used to help service clients without becoming overly burdensome.
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Everyone knows they should plan early for retirement, but employees spend more time thinking about their next vacation. It's our job as industry service providers to help make those conversations happen, but with ease, comfort, and security. Advisers — wealth, retirement, or otherwise — should spark the conversation, drive the education, and leverage technology to carry the message and servicing for longevity.
Aaron Schumm is the founder and CEO of Vestwell.