In Practice September 13, 2023

Some Wealth Managers See Growth in Branching Out to Retirement Consulting

One of the commonly missed opportunities for growing a retirement or wealth advisory business is executive financial consulting, according to an M&A expert from Marshberry.

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Mergers and acquisitions by retirement, wealth management and insurance aggregators have been rampant in recent years. Now wealth managers have been dipping their toes into retirement plan advisory acquisitions as a business line, according to a speaker at the 2023 PLANADVISER National Conference in Scottsdale, Arizona.

“Why are wealth management firms getting into retirement consulting? Growth,” said Rob Madore, vice president at M&A consultancy Marshberry.

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Madore said the common challenges for most retirement consultants are compressing margins and fees, competition, and organic growth. Meanwhile, wealth managers have issues creating succession in their businesses and competition. There are also many aggregators coming in, providing more of a national model with robust back-office services. As a result, wealth management firms have sought growth through retirement consulting.

Madore noted that, typically, $2 1/2 million-plus retirement firms are considered a business of scale. On the wealth side, that figure is generally $7 million to $10 million.

“The margins are much greater in wealth management, at 40 to 60%, versus the retirement consulting side, which is 20 to 40% and shrinking,” he said.

Even so, wealth managers see potential to grow by serving clients with retirement plans, Madore said, and then converging those relationships to business in the long term.

For those firms that are solely focused on retirement plans, there is still a space in the marketplace, he said, so long as “you understand what you’re trying to build.”

One area of growth that advisories of all types often miss out on is executive financial consulting and other types of corporate-level services, according to Madore.

“Ultimately, especially if you’re in wealth management, you really care about the ultra-high-net-worth [clients],” he says. “You provide a flat fee consulting to executives within a company, and that can be very significant….depending on the plan you’re working with and the kind of service that you’re providing. That’s probably the lowest-hanging fruit.”

He says there are wealth management operations, “truly large enterprises,” that started and continue to grow solely by finding one or two companies in their area and reaping the rewards of ongoing education over a long period of time.

“[Executive financial consulting] is going to give you ongoing interactions with the executives of a company, you’re going to understand their situation better than anyone, and you’re going to actually grow your business from that,” Madore said.

 

Data & Research September 12, 2023

Blended TDF Uptake Remains Low, but ‘There’s Clearly Something Shifting’

Only 9% of advisers report using blended TDFs, but 93% are interested in them, according to a T. Rowe Price expert.

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When surveying consultants and advisers from 32 different firms, 93% said they were interested in blended TDFs for the future, but its current use lags at just 9%, says Michael Doshier, a senior defined contribution adviser strategist at T. Rowe Price, while attending the 2023 PLANADVISER National Conference in Scottsdale, Arizona.

Doshier says based on T. Rowe Price’s most recent information, 48% of TDF assets are passive, while 31% are active, and only 9% are blended. However, when advisers were asked, “What would you likely put as the front option for your clients moving forward?” 93% of respondents said they would opt for blended TDFs, while just 3% were interested in each of passive and active. He says that answer “really blows me away.”

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“I don’t know how it’s going to happen,” he says. “I don’t know if it’ll happen in five or 10 years, but with that level of focus from many of the most significant influencers in the industry being asked what they think, I’m not going to bet against it.”

In terms of a shift that has happened within plans, Doshier says that T. Rowe’s research showed 48% of the target-date assets in DC plans, not just large market, are now in collective investment trusts. For years, Doshier says, there was already widespread conversation about CITs. Now T. Rowe Price is the largest active manager of TDFs in the industry, including 52% CITs. Just five or so years ago, the industry number for CITs was in the low 20s.

“I don’t know that I’ve seen much happen that fast in the DC space, ever,” Doshier says. “But there’s clearly a big, big drive. [Advisers] probably personally experienced this or see there’s a lot of relationship pricing arrangements going on, trying to drop that lower minimum number so that more plans can qualify for CITs and not get closed up by minimums.”

He says the value proposition of why CITs are being chosen rather than mutual funds is almost solely based on price. When people want to build a custom solution, it is quicker, easier and less expensive to create that in a CIT structure than in a 40-act mutual fund structure, which requires extensive registration process. Many large firms have launched their own white label qualified default investment alternative TDFs, which are almost exclusively CIT.

“The big pushback on CITs used to be that participants were going to push back because they can’t look it up on the Wall Street Journal’s webpage,” he says. “I don’t hear that now, but I used to hear that nine times out of 10 when CITs would come up. Now it’s one out of 10. I think there’s clearly something shifting.”

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