Ask Grant Arends about opportunities and challenges in the 401(k) space, and you’ll get an earful.
The president of consulting services with Alliance Benefit Group Financial Services didn’t hold back Sunday morning at the GRP Advisor Alliance 2016 Industry Leaders Conference in Haines, Alaska.
“The big opportunity for us is in wealth management, and the DOL’s final fiduciary rule breeds an opportunity to do it right,” Arends explained. “It’s a competitive advantage for advisors over the captive brokerage guys, so it’s a huge opportunity to bring captive brokers or advisors over into independent investment management firms such as ours.”
Noting that last year, $140 million rolled out of the 401(k) plans that the firm manages, and that $2.4 trillion is expected to roll out of 401(k) plans in total over the next five years, retaining assets is “a vital strategic initiative.” For independent firms that have always embraced transparency, disclosure, and level compensation, the new fiduciary rule codifies the opportunity to provide service the right way, according to Arends.
He sees ongoing fee compression coupled with the desire, or need, for plan sponsors to offer more participant-level services as a major challenge for the 401(k) advisory business. In order to combat it, Arends said his firm has segmented clients by the services they require. Are they interested in just plan level services or do they expect robust onsite participant engagement? The answer to that question may determine not only the fee, but whether or not the client is charged a “hard dollar fee” or basis points.
“Designing a service model in a customized manner that suits the client is what we do, so we’re individually underwriting almost every plan. We find out about their suitability by asking questions. If we don’t have the right answers, then we didn’t ask the right questions.”
As for the aforementioned fiduciary rule itself, Arends is a fan.
“We know that the new rule greatly expands the fiduciary governance and oversight requirements to the IRA marketplace. What is unclear is what it means from a fiduciary perspective for plan sponsor.”
Given that the economics, from a fee perspective, may favor a participant leaving the money in the plan, Arends believes that plan sponsors may need to think about adding in-plan installments and periodic payments distribution provisions versus only lump-sum.
“Traditionally, the plan sponsor was resistant to add more flexible distribution options because they were intimately involved in the administration and processing of the transactions. However, plan providers can now automate virtually every step, thereby managing the entire process themselves. The advisor’s role will shift to outlining costs and benefits of leaving assets in the plan versus rolling them over. We must show the participant the impact of using an advisor as well as if they do it themselves. It might cost more but they get all the additional benefits that might be better suited to them.”
When thinking of the value his firm provides in the 401(k) space, Arends specifically wants to avoid having the primary focus and value proposition centered around what he calls the “three Fs”—fear, funds and fees.
“I don’t get up in the morning thinking about how I’m going to protect a business owner from getting sued. What fun is that? I get up in the morning to design plans that help them grow and lead to better participant outcomes. Everything is going to be about longevity, so that’s why outcomes are so important.”