At an industry conference this week, an elite retirement planning advisor was shocked when I pointed out how a large RPA aggregator firm is heavily discounting their plan fees because they’re making so many servicing participants. The plan fee for the $350 million DC plan was $35,000.
“Such a price undercuts what they do,” RPA said. “They must be crazy!”
Maybe. But they are the biggest and most successful RPA firm in the country and all other aggregators are scrambling to catch up.
At the March 2018 RPA Aggregator Roundtable, I asked if independent RPAs could survive without joining an aggregator. I was surprised to hear them say “yes”, but with one caveat – it would be hard to grow.
As Triple F plan level fees decline for RPAs run by large, national firms with enormous resources and local presence, employers need to recruit and retain employees to not only increase their retirement benefits, but While work also offers other financial benefits, RPAs that are not pivotal to money management have a difficult time growing up, even if they are able to survive based on relationships.
Some aggregators affiliated with P&Cs and profit shops may offer discounts on retirement plans because they can build it on other services, but the value will only go so far, depending on better pricing.
All this made me think about how retirement and wealth management became so silent. “Retirement is money,” commented Dick Daria, aka Wise Rhino. “It always has been.”
Before DC plans became popular in the 1990s when mutual fund companies such as Fidelity, American Funds, MFS, and Putnam entered the market, retirement savings for most people was a combination of defined benefits, Social Security and personal savings that included their household. was also involved. Consultants focused on managing personal assets.
DC schemes offered interesting opportunities to less sophisticated investors with rich commissions, with large pools of assets. Only a few RPAs were cultivated by DC mutual fund wholesalers, which has grown to around 25,000 RPAs with over 50% of DC revenues.
Until relatively recently, most RPAs avoided working with participants because of perceived conflicts of interest and lack of experience or resources to do so efficiently. And most RIAs, broker-dealers and wealth managers see a lot of assets and liability, but don’t see the ability to more effectively mine the low revenue and profit for wealth management clients and the incredible access to 90 million participants in DC plans. take advantage of.
So while we wait to see whether the Creative Planning acquisition of Lockton’s retirement division wakes up other RIA aggregators and smaller firms, asset management is helping to leverage its vast DC practice to find clients more efficiently. Captrust’s success is on the edge of RPA aggregators. And if aggregators are concerned, smaller firms should take note.
The open potential within DC plans to find wealthy clients and ultimately engage 97% through a new business model that leverages wealth technology, data and financial coaches can no longer be overlooked. And RPAs that remain in their lane will be seen as less valuable to employers who provide partner services that integrate funding, retirement, and benefits.
We need to rejoin wealth and retirement—their separation was and is artificial. Each RIA offers retirement planning for individual clients and each RPA is required to incorporate wealth management and financial planning into their practices, either alone or through partnership, even if we start with mining for the 3% , while we wait for the rest of the solution.
This is a fact that is not lost on most RPA aggregators who are now in the same position as independent RPAs. Their private equity partners are on the lookout for the kind of growth that could come not only from selling more plans at scale but also from partner services. Otherwise, these aggregators turn from predators to prey.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.