The Emperor Has No Clothes: Wealth Management’s Risky Push Into 401(k)s
Throughout my career there have been multiple times when I have felt like the kid in The Emperor’s New Clothes. While the “experts” are all discussing how brilliant they are as the emperor walks through the streets naked, one child simply points out that the emperor is naked. Initially, the child is dismissed because he cannot possibly be smarter than the experts, but then people realize that the emperor is indeed not wearing fine clothes; he is just naked.
I am beginning to have the same feeling about the increasing push to integrate wealth management into retirement plan advisory practices. Retirement plan advisors have always drawn a line (to some degree) about working with individual participants, while wealth management firms have been trying to figure out how they can get to those retirement plan assets without working in a fiduciary capacity. With all the aggregation that is happening and the need for additional revenue, it appears that many firms are now crossing that line.
Part of this conversation seems to be a rising sentiment that “Three F” advisors are dinosaurs and that funds, fees and fiduciary are just table stakes. But here’s the thing—you must be GOOD at those services to have any credibility with plan sponsors. The same principles that drove success in the marketplace—transparency, reasonable fees and unconflicted advice—need to be carried over to education as it applies to participants.
What concerns me most about this trend is the numerous articles I have seen regarding the benefits of this convergence for advisory firms. There are usually some references to helping participants and improving plan outcomes, but there is also a heavy emphasis on the additional revenue that can be generated. Everyone needs to be paid, but the expectations in the fiduciary relationship need to be different. The emphasis must be on sound fiduciary practices and supporting plan sponsors, not blind allegiance to revenue.
For the record, there is a need for education and plan sponsors are interested in helping their participants, but they are also fiduciaries. I am not questioning the need for education; I am simply pointing out that plan sponsors need to do their due diligence. They have shown that they want an unconflicted advisor to help them. An excellent example is managed accounts. These portfolios can be a very useful tool to help participants. They can also be targets for litigation. Advisors who are trying to provide both fiduciary support and product sales are going to be challenged.
Retirement plan advisors have shown that by focusing on fiduciary best practices you can lower costs, improve investment oversight, and drive participant outcomes through plan design. If wealth managers believe they can improve on that, everybody wins.
Just be prepared to be held to a higher standard for transparency and accountability. Retirement plan advisors have been doing that for decades. You do not want to find yourself naked, without good fiduciary practices, in a crowd of plan sponsors.
SEE ALSO:
• Voya’s WealthPlan Platform Expands Wealth Management Capabilities Inside, Outside Retirement Plans
• AI Tech to Spot Fiduciary Risks in Coming Years
Bob Foster has worked in the financial services industry for nearly 30 years, spending most of his career as a retirement plan consultant. He has been a longstanding advocate for the fiduciary model and built a successful advisory practice in Omaha, Neb. After selling that practice in 2019, Bob soon realized he missed the industry. In 2022, he and his son, Nathan Foster, founded Fiduciary Advocates, dedicated to helping plan sponsors select and monitor their advisory relationships. In less than two years, the firm has advised plan sponsors overseeing nearly $3 billion in assets and continues to work toward making advisor due diligence more efficient, effective, and accessible.
