Hybrid wholesaling coming for the 401(k) market

Hybrid wholesaling or digital wholesaling have been buzz words without much action behind them for over a decade in the defined-contribution market. But the concept makes too much sense to go away, and the COVID-19 crisis is likely to make digital wholesaling a reality.

How could it change the record-keeping and defined-contribution-investment-only wholesaling process? And how should advisers take advantage of it?

Digital wholesaling is simply using technology and information platforms to reach the right adviser at the right time, in the way they want to be contacted, rather than relying on in-person visits. Business-to-consumer online companies use this strategy every day. And though it might be annoying to start getting ads about cars after you have shopped for one, it is effective.

Reaching financial advisers is different than B2C interactions with consumers who might make snap buying decisions. There are fewer regulatory or long-term implications for advisers and their clients. Before we can make predictions about the 401(k) market, which is further nuanced, we must understand the audience and the products they buy.

Shopping for or buying record keeping is different than shopping for investments -- the former is more of a service, the latter is about results. There’s also a difference between retirement plan advisers who focus on DC plans and those who dabble. And there’s an obvious difference between larger DC plans and those in the micro and startup markets.

The COVID-19 crisis will change wholesaling forever, shifting the focus from personality to principles. No longer will friendship, dinners and sports tickets play an instrumental role. In fact, Merrill recently announced that wholesalers are prohibited from entertaining its advisers, and Captrust has had a “no golf ball” rule for years, restricting even payment for dinner.

With investment decisions more centralized, DCIOs have been struggling to reach their target audience, the top 3,500 retirement plan advisers, and consistently show a return for the time advisers spend with them. As pooled employer plans and fintech record keepers gain momentum, the same results are likely for record keepers.

While record-keeping wholesalers spend a lot of time helping dabblers during the sales process, RPAs find more value from client servicing, data, technology integration and cross-selling assistance.

The bottom line is that DC providers must find better ways to target the right advisers. They need to understand advisers’ sales process and create a content strategy to keep in touch. In other words, DC providers need to be thoughtful about the “who, when and what,” instead of throwing expensive bodies at the problem, hoping that the next adviser they meet with is the right one.

RPAs should be looking for record keepers that understand and respect their business. Record keepers should serve clients collaboratively. Their wholesalers should provide access to the right people at the home office and the right technology to integrate with the adviser’s stack, without taking up too much of their time. Elite RPAs conduct site visits -- now, that should be able to occur virtually. DCIOs should also be looking to provide RPAs with digital access to the portfolio managers.

As advisers build their businesses, they need relevant content, training and education for themselves, their staff, clients and prospects. The best wholesalers have been doing that for years.

The world continues to change. The best and brightest advisers and providers have learned from this remote-work reality and will follow up with a robust hybrid wholesaling, client service and prospecting strategy. We might actually see the same increase in productivity from technology as we did with the internet boom -- with some thriving and others dying.

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Fred Barstein is 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.