Will “coopetition” between recordkeepers and plan advisors increase in the coming year? Boston-based research and consulting firm Cerulli Associates says yes, and the two parties will work together to serve the plan but simultaneously compete for participant rollovers.
“The ancillary revenue generated from converting participants to wealth management relationships may, in turn, allow recordkeepers and plan advisors to charge more competitive plan-level fees …”
It estimates more than $440 billion in DC assets were rolled into individual retirement accounts (IRAs) with the help of an advisor in 2021.
“For wealth managers looking to capture rollovers from DC plans, this data underscores the importance of establishing and nurturing relationships with participants earlier in their careers, years before potential rollover events,” Shawn O’Brien, Cerulli Associate Director, said in a statement.
Given the attractive economics of wealth management, DC recordkeepers and retirement aggregator firms “are seizing opportunities at the intersection of DC and wealth management by creating synergies across these two business lines, sourcing wealth management relationships from their DC plan clients.”
The ancillary revenue generated from converting participants to wealth management relationships may, in turn, allow recordkeepers and plan advisors to charge more competitive plan-level fees to expand the breadth of their DC business, Cerulli claimed.
Some top retirement aggregator firms seek to expand their wealth management operations and capabilities by acquiring smaller, regional wealth management firms.
“Aggregators are widely viewed as the key plan-level decision makers in the DC mid-market,” O’Brien added. “Through acquisition and organic growth, they have captured a substantial share of DC-intermediated assets.
According to the research, the top-10 retirement aggregator firms collectively advise on more than $1 trillion in DC assets, which “poses a potential threat to recordkeepers that offer wealth management services.”
Recordkeeping defense
Recordkeepers will need to play defense, striking a balance between satisfying plan advisors to retain DC mandates and maintaining relationships with aggregators because of their influence in helping plan sponsors monitor and select their recordkeeper(s).
“Initiating direct, constructive conversations with plan advisors to address their respective approaches to capturing rollovers will help recordkeepers find a middle ground,” O’Brien said.
The research also suggests that recordkeepers employ a tiered wealth management model based on household investable assets to serve mass-affluent and middle-market rollover clients.
“There is an opportunity for recordkeepers to leverage digital solutions that offer scale to serve less affluent participants or those unwilling to pay the higher fees associated with a traditional wealth management relationship,” he concluded.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
