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Should RIAs Start Taking Advantage of 401(k) Plans?

In a seminal podcast, Wise Rhino Group founder and longtime 401(k) executive Dick Derian explores the opportunities for RIAs in the defined contribution industry and the risks they face if they ignore them.

Although the wealth management advisory business is more profitable than the DC industry with approximately 10 times more professionals and addressable market opportunities, the approximately 25,000 retirement plan advisory specialists defined by people with at least 50% of revenue from DC plans are more developed businesses. . Perhaps the model out of necessity with more growth potential.

RPAs are required to create staffing and internal processes for service plan sponsors and their workforce. Their fees have declined as their core services (fees, fines and fiduciaries) continue to be commoditized. The RPA must deal with the Internal Revenue Service, the Department of Labor and Securities, and the Exchange Commission, which makes compliance difficult and liability especially high with increased litigation. The commoditization of their core services and the decline of their fees from commission to fee-based to flat fees at an alarming rate have forced RPAs to make a real business or sell it to large aggregators.

As a result, RPAs are leaner and have more internal resources than their RIA counterparts, making them a strong competition among the plans they offer for wealth management clients, rollovers and post-retirement income.

Opportunities are increasing within DC plans. Most RPA aggregators realize that their large employee customer base is a great way to mine traditional money clients led by Captrust with over 7 million participants. Similarly, wealth management led by record-keepers Fidelity, Schwab and Vanguard are building IRA rollover machines and other services to capture clients. There is tremendous focus on retirement income which is best initiated within a DC plan. The government mandate can rapidly increase the number of schemes.

Meanwhile, the pending DOL fiduciary rule with enforcement scheduled for June 2022 could hinder RIAs’ ability to capture rollovers as they must determine whether the rollover is in the best interest of the customer.

So while most RIAs shun DC plans due to the relatively low fees and high liability, the opportunity for wealth management clients to mine, protect clients in the plans they manage, and achieve rollovers makes this market more accessible. can be attractive. That’s probably why Creative Planning bought Lockton’s $110 billion and 1 million participant DC business, and Dan Severt at Echelon predicts that more RIAs will buy into the DC market to sell wealth management and financial planning.

The risk for RIAs that manage clients with significant assets in DC plans and rely on IRA rollover and retirement income services is that the RPAs that have access and the employees’ confidence in the plans they manage may lose money from RIAs. will do business.

None of this means that an RIA should or should become an RPA specialist. Larger companies such as Creative Planning may purchase RPA firms in locations where they have offices such as RPAs purchasing geographically compatible RIAs. Smaller RIAs can partner with RPAs, most of which do not have or do not want to offer wealth management capabilities.

But to ignore the DC market and the growing trend of offering financial services at work, as both RPA and record keepers seek to capture opportunities for rollover, wealth management and retirement income while building a relationship with Henry (higher earnings). Doers aren’t rich yet) Making it harder for RIAs to rollover like DOL is seems a bit short-sighted and maybe even silly.

Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.

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