A Future of ‘Coopetition’

Photo by Matt Kalinowski

Attending our PLANADVISER National Conference this year, I was struck by something Randy Long, founder
and managing principal at SageView Advisory Group,
said about the evolution of his firm. Despite having previously expressed the conviction that SageView
would focus exclusively on retirement plan clients, a
few years ago Long changed his mind. SageView now supplies participant services and handles billions of dollars in its wealth management division.

This shift is not exclusive to SageView. Many retirement plan advisory firms now focus on wealth management and the participant relationship—something that is discussed by our sources in this issue’s cover story.

Why wealth management? Well, as Cerulli notes in its recent “Cerulli Edge—U.S. Asset and Wealth Management Edition”: “… the wealth management industry largely has been insulated from the intense fee compression experienced in other areas of the asset management and retirement industries.” This means that wealth management relationships can be much more lucrative for both advisers and recordkeepers than are the plan relationships. It’s no secret that recordkeeping, with its years of consolidation, is a tough business and the reason some recordkeepers stay in it is not because they make a lot of money but because the business is an entry point to selling additional funds and products and services. This leads to some very competitive pricing on recordkeeping services.

As plan advisory firms increasingly offer wealth management, it will be interesting to note whether they might find themselves following similar pricing conventions and charging lower plan-level fees with the anticipation of winning other assets from the participants.

“As a result,” according to the Cerulli report, “several [defined contribution] recordkeepers, retirement aggregator firms, and traditional wealth management 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 flip side of all of this is that, as advisory firms and aggregators build out their wealth management capabilities, they are now competing with their recordkeeping partners who are looking to capture the assets of those same DC plan participants with their rollovers or other assets.

The report spoke about this concept, calling it “coopetition.”

I have a feeling it’s going to be a difficult balance as these two groups—providers and advisers—will have to continue to work together to support the plan sponsors and will also be simultaneously competing for billions of dollars in potential retiree client business. What that means for long-term mutual support and partnerships remains to be seen.

I also think the other side of this is interesting—those advisers and consultants who aren’t going after participant assets. Those who are not moving in this direction have told me they can’t seem to accept what they see as the inherent conflicts of interest that come from moving participants from a low or lower-cost retirement plan to more expensive wealth services offered by the plan advisory firm. Time will also tell whether the SEC’s Regulation Best Interest may influence how these services evolve or how advisers frame their wealth management services to plan participants of existing clients.

Where do we go from here? It’s unclear exactly what the future of participant services will be in our industry. I look forward to watching how the quest to win participant business evolves.