Cerulli: Advisors struggle to turn 401(k) savers into wealth clients

Financial advisors say they want to grow their wealth businesses through the retirement plans they already serve. Few are managing to do it.

On average, just 10.2% of an advisor's wealth clients came from a defined contribution plan relationship, according to new joint research by Cerulli Associates and Morningstar. Meanwhile, 91.2% of those surveyed called building their wealth practice at least a moderate priority, and about 63% said the same about prospecting for wealth clients inside their DC plans.

Across wirehouses, RIA aggregators, independent practices and recordkeepers, Cerulli found that the so-called "Bridge to Wealth" – which involves winning retirement plan clients, then systematically finding, vetting and converting plan participants into individual wealth management relationships – remains elusive for almost all those who set out to build it at scale.

"Growing a wealth management practice organically can be very challenging, so advisors may be missing out on warmer leads that exist within DC plans whom they already have relationships with," said Chris Bailey, director at Cerulli Associates.

Read more: Workplace retirement plans can be a pipeline for wealth clients, report reveals

Why the 401(k)-to-wealth pipeline stalls

Based on a survey of hundreds of advisors and dozens of interviews with home-office executives and individual advisors, researchers found time was the biggest perceive obstacle. Nearly two-fifths of plan advisors who don't prioritize wealth growth (37.8%) said they don't have enough hours to prospect in their DC plans. Another 24.5% said they don't have the staff to offer wealth services to participants, and 20.9% said the extra revenue isn't worth the effort.

Account minimums only add to the friction. Just over half of advisors (52.5%) said they require new wealth clients to bring at least $250,000 in new assets; for advisors with practices built mainly around DC plans, that share rises to nearly 60%.

Among three categories of advisors Cerulli considered, DC plan specialists – who reportedly derived roughly 66% of their revenue from retirement plans – reported serving just about half as many wealth clients as their peers because they lacked the tech and manpower to take on more.

Wealth-retirement hybrids, who get an estimated 23% of their revenue from plans, were able to source 15.5% of wealth clients from their plan business. The third category, wealth advisors, reportedly got 7% of their revenue from plans, and just 3.5% of their clients reportedly arrived from their plan business.

Advisors starved for home office support

In general, advisors told Cerulli their home offices offer limited help. Among those not prioritizing wealth growth, 53.4% ranked help converting DC-sourced prospects as a top-three resource their firm could provide, and 43.7% said the same about help identifying those prospects.

Then there's the blind spot in data. For every type of participant data Cerulli asked about, at least 62% of advisors either lacked it or wanted more detail. Demand was highest for participant life events such as marriage or a job change, at 82.1%. Only 14% of advisors use artificial intelligence for prospecting, and another 29% are experimenting with it.

"Advisors don't need convincing that the Bridge to Wealth is worth building. They need the tools to build it without adding headcount or hours," said Brock Johnson, president of Morningstar Retirement.

'Rules of engagement' with recordkeepers

Cerulli's research also described a dynamic in which recordkeepers with their own wealth arms – including Fidelity, Schwab and Empower – are pursuing rollovers directly, creating a friction point with advisors who now see them as competitors. On that note, Cerulli found 58% of advisors are willing to set participant "rules of engagement" with those providers to keep working with them.

"Other recordkeepers lacking the same retail wealth footprint while maintaining strong relationships with advisors are working to become the preferred partners of advisory firms," the report said.

Read more: Pontera cries 'anticompetitive,' Fidelity cites cyber safety in credential sharing standoff

Against that backdrop, Ascensus recently announced the rollout of a workplace-to-wealth platform meant to link retirement savers with financial advisors at moments such as job changes and retirement. The recordkeeper, which serves more than 16 million savers, says the platform combines referral workflows, advisor engagement tools and participant insights, along with AI-powered digital support.

"Too many people face critical financial decisions such as changing jobs, preparing for retirement, or rolling over savings, without access to professional financial advice," Dan Morrison, president of retirement at Ascensus, said in a September 30 release. "We don't compete with the advisors and institutions we serve."

Ascensus is starting with a limited group of firms participating in the program, with plans to add more advisory firms and financial institutions in the coming months.