The Possibilities Ahead
About 15 to 20 years ago, retirement plan advisers began to recognize, and respond to, an expanding opportunity to serve plan sponsors in a fiduciary capacity. Their goal was to concentrate on retirement plans exclusively, to focus on selling strategic plan consulting services and to separate themselves from individual wealth management.
More recently, an evolution has taken place in the advisory industry—one embracing a concept that is both foreign and, for many, ultimately familiar. Jennifer Doss, senior director of defined contribution practice at CAPTRUST in Raleigh, North Carolina, sums it up in two words: “holistic services.”
Doss recalls when she joined CAPTRUST, in 2007. “Back then, you made recommendations on investments, and that was the real basis of what our clients engaged us for. Today, things have become much more comprehensive,” she says. “Much of the investment oversight and management is completely outsourced to the adviser, and the client relationship is so much more strategic.”
Many advisers are, in fact, taking that relationship further, seeking ways to offer unconflicted services to both plan sponsors and plan participants, often by the adviser limiting his work with individual wealth management and rollover clients.
During his time in the industry, says Christian Mango, national practice leader at Alera Group Retirement Plan Services, in Deerfield, Illinois, retirement plan advisers have been seeing accelerated market compression and increasingly commoditized services. While this means many firms are being asked to deliver more services for the same fee, it also is driving efficiency, he notes. He says firms are adding various new offerings that solve for a range of participants’ broader needs, across household budgeting, emergency savings and other areas that traditionally fell outside plan advisers’ purview.
For those firms, suggests Joe DeNoyior, a long-term adviser who now serves as president of Hub Retirement and Private Wealth in Chicago, the industry’s service model has become “an all-encompassing approach that includes financial planning, wellness and a focus on client outcomes—especially to help clients who are nearing retirement with their future income needs.
More and more,” he continues, “that includes an analysis of the best time to begin taking Social Security benefits, educating the person on how and when to apply for Medicare, and planning and funding ongoing health-care expenses throughout retirement. We [at Hub] have undertaken a big-picture focus on delivering a suite of financial wellness solutions so we can help the employee base go from surviving to thriving.”
The Role of the Plan Adviser
With the employee market’s broadening potential, the outlook for retirement plan advisers remains bright, says Peter Mallouk, president and CEO of Creative Planning in Overland Park, Kansas, though the path ahead for the most successful firms will not be simple or straightforward.
As Mallouk, Doss, DeNoyior and other sources point out, the dynamics in the industry seem to be changing again. Like a pendulum on the return, there is now a clear and growing interest among many of the biggest and most successful retirement plan advisory practices in recombining the wealth management and retirement plan advisory sides of the business.
Reflecting on where her firm and the broader plan advisory industry have come from in the last 15 years, Doss says the changes have been significant, but there is no reason to expect them to be complete. “As the adviser, you’re a holistic partner to the plan sponsor, and you’re helping it with so much more than investments.”
Doss says she believes the industry has moved in this direction for a number of related reasons, including the fact that plan sponsors today feel confident about putting substantial trust in advisers and their expertise.
“There is also greater awareness of the threat of litigation pertaining to investments and the idea that advisers can help protect their clients from fiduciary liability,” Doss observes. “And then there’s the fact that our clients have so many demands on their time. By taking on investment discretion, we can work with them in a more strategic way, improving their plans and focusing on the things that really move the needle. It also permits us to focus on serving the participant.”
To Doss’ point, the stated vision of firms such as Creative Planning and CAPTRUST is to create a broad service ecosystem—which clients want and need, especially as the defined contribution plan system continues to mature and become a key component of individuals’ retirement planning.
As client demographics shift, DeNoyior says, the ability to help plan sponsors provide solutions that speak to the specific needs of their various employee segments, along with doing a great job of helping them manage the plan, are the biggest opportunities ahead.
With this shifting focus comes some big questions. What is the right way to structure a growing practice that serves both wealth management and retirement plan clients? What role will rollovers, annuities and insurance products and providers play in a future dominated by more “holistic” advisory shops? What firms will ultimately win “ownership” of the vast population of plan participants who now utilize DC-style retirement plans? And perhaps the biggest question of all: What does the future hold for the retirement plan adviser?
The Rise of the Holistic Services
There is a select group of registered investment adviser “aggregators” that are doing their best to fundamentally remake the shape of the advisory industry, sources agree. Some of these are CAPTRUST, CBIZ Retirement Plan Services, Creative Planning, Gallagher Benefit Services Inc., MMA Retirement Services, Pensionmark Financial Group, Resources Investment Advisors – a OneDigital Company, and SageView Advisory Group. All of these firms are aggressively pursuing the acquisition of both retirement plan advisory and wealth management shops, the idea being that highly scaled, nationally represented advisory firms with diverse skill sets will be able to outcompete their smaller regional and local peers.
Scale and efficiency grow more important every day, as does the ability to respond to a growing and more sophisticated set of client demands that cut across asset accumulation, asset protection and, increasingly, spending and decumulation, says Mallouk.
For Creative Planning’s part, to serve DC plan clients that are “way up-market” had not been a major focus, Mallouk says. Now, with the firm’s recent acquisitions—including Lockton Retirement Services and Wipfli Financial Advisors, the wealth management and investment advisory affiliate of Wipfli LLP—Mallouk says his company is ready to compete at all levels across wealth and retirement.
In an assertion echoed by the leaders at other rapidly growing firms, Mallouk says serving both retirement plan clients and private individuals does not mean a firm will be aggressively soliciting rollovers or engaging in other potentially problematic cross-selling behaviors barred by the Employee Retirement Income Security Act. Instead, he and others agree, building a firm that does both private wealth and institutional retirement plan business—alongside insurance brokerage services and even health-care-focused services—is ideal at this time.
“We have also seen massive consolidation in the marketplace with recordkeepers, broker/dealers and large market institutional consultants joining forces,” Mango says. “Now, we’re seeing a clear acceleration of advisory shops aligning with larger entities to achieve the benefits of size and scale.”
He says successful business models of the future will understand and embrace the convergence of “wealth, retirement and beyond. These are the key factors in a firm’s overall success,” he says. “Advisers of today and of the future must think more holistically about benefits, retirement and wealth. This will require collaborative integration across employee benefits, property/casualty insurance, wealth services and retirement plan services. Success requires more creative problem-solving and the ability to deliver more personalized services and solutions.”
“Getting the right group of talented and experienced advisers together under one roof is extremely important for long-term success in this industry,” Mallouk says. “In reality, it’s a pretty small pool of practitioners who are experts in this field, so talent acquisition is every bit as important as scale, from our point of view.”
Doss expects the retirement plan advisory industry as a whole to continue on its current trajectory for many years to come, with firms such as CAPTRUST and its national competitors continuing to acquire smaller shops and expand services for individual participants and wealth management consumers.
One particularly important trend Doss foresees is the growth of “individualized advice for the masses,” delivered in a hybrid approach combining human input and technology.
“The demand for individualized, personalized advisory services for plan participants has just exploded in the post-COVID world,” Doss says. “I think people—business owners and plan sponsors—have realized the value of advice, and they’re getting questions from their people about access to advisory services and support in the workplace.”
A Tech-Enabled Future
According to Doss, the timing of the pandemic gave a much-needed shock to the system while powerful new technologies and business management philosophies were coming to the fore. In other words, firms now have the capability of leveraging technology to deliver tailored advisory solutions to massive groups of plan participants, and the leaders of retirement plan advisory firms and plan service providers see the mass market as a source of tremendous potential growth.
Nick Della Vedova, president of NFP Retirement in Aliso Viejo, California, agrees, saying one certainty is that the future of the retirement plan advisory business is going to be tech-enabled. In terms of his own firm, Della Vedova says, technology has already played a significant role in the evolution of its plan advisory business.
“The accessibility to increased computing power allows advisers to provide a higher level of analysis, which enables them to save time and subsequently focus on participant outcomes by providing additional value-added services, such as financial wellness programs,” Della Vedova says. “Funds, fees and fiduciary protocols/processes will always be fundamental to what an advisory practice delivers, but it’s the day-to-day work that has changed over time.”
Della Vedova says NFP’s clients today expect the firm to provide advice pertaining to “all things financial,” which now includes the entire benefits package. Notably, he adds, the movement among many employers to use health savings accounts as a key component of their employee health insurance program has created a needed connection between health and retirement benefits.
Doss agrees, and, while noting the value that mega firms can deliver to the broader investor population, she cites participants with a different set of financial priorities. “As a middle- or lower-income client, a given plan participant might not need that specialized tax planning or the most sophisticated investment management; however, this person very well may need our help with developing sufficient emergency savings and understanding the right approach to college savings and health insurance.”
The Income and Insurance Question
Individual savers, now more than ever, rely on advice delivered in employer communications to determine where to contribute their next dollar, Della Vedova suggests. Advisory professionals, in response, have had to shift their focus away from the singular topic of investment portfolios and performance in favor of taking a broader, more strategic view.
At NFP, this process has resulted in a business realignment that recently saw the creation of three “distinct yet integrated” business segments. These are property and casualty; benefits and life; and wealth and retirement.
Explaining the rationale for this approach, Della Vedova says NFP recognized that it is critical to evolve in ways that make sense for the firm and the clients it serves. Put simply, services and solutions coming from the property and casualty business will help clients manage and mitigate risks; the benefits and consulting services will enable employer clients to attract and retain top talent; and, finally, wealth and retirement will help enhance the financial wellness and security of investors.
Similarly, DeNoyior says, firms such as Hub—with its extensive insurance operations that cut across workplace employee benefits, business risk management and personal insurance products and services—stand in a position to bring a “complete benefits and risk package to both current clients and prospects.”
“Being deeper and broader with our clients is what they demand…”
“As the world becomes more personalized,” Della Vedova says, “our client offerings need to follow this trend. Being deeper and broader with our clients is what they demand, and our advisers can foster existing relationships with companies, executives and employees by assessing challenges fully and aligning them with a spectrum of personalized and varied retirement solutions. The forward-thinking advisers who can execute effectively on this will thrive in this new environment.”
Naturally, DeNoyior adds, the industry will have notable challenges to grapple with that accompany the exciting growth opportunities up ahead. He says M&A transactions, among other factors, will help Hub achieve its vision and tackle those challenges.
“Pricing is another challenge, both on plan administration and overall,” DeNoyior warns. “How do you help companies create compelling benefits and risk packages that help attract and retain the best employees, while at the same time [you’re] achieving scalability and a profit margin that’s sustainable?”
In addition, people in general are saving too little for retirement.” He mentions two of the widely known issues confounding the industry: workers without access to a retirement or emergency savings plan who are living paycheck to paycheck, and young employees unable to save due to student debt. “We have to solve for these things. An adviser who can serve both sponsor and employee needs holistically, we think, will have an advantage.
—John Manganaro
Clients Reevaluate Their Relationship With Advisers
It has become critical that advisers understand more than retirement
Many plan sponsors are evaluating their relationship with plan advisers as they seek guidance on managing benefits, according to retirement industry veterans who spoke during a PLANADVISER 2022 Practice Progress webinar.
The Great Resignation has complicated matters, said Jim Scheinberg, managing partner at North Pier Fiduciary Management, in Marina del Rey, California. Client firms are seeing high turnover and a reduction in staff across the board. While their human resources and finance teams each once consisted of four or five members, now fewer people may have the same volume of work spread among them, he said.
“We’re also seeing that reflected on the service provider side, with recordkeepers or administrators, where their service teams are being stretched thin,” Scheinberg said, noting this applies “in response times, hold times, in getting resolution to various items that may be normal in the course of governing your plan, or maybe one-off items.”
As a result, many with heightened responsibilities are turning to the plan adviser for help. In the process, some are beginning to see a difference in the quality of the work that results, and it can become an issue when the adviser fails to deliver for their client.
Robert Massa, managing director at Qualified Plan Advisors in Houston, agreed that advisers are increasingly being sought for support. The sponsor may lack in-house expertise in reviewing plan documents or plan audits and have been struggling to locate experienced talent. Advisers must be able to understand more than just retirement—in his view, they also have to grasp where and how retirement fits into the whole benefits scheme.
Scheinberg noted that, as sponsors look to reevaluate their relationship with their plan adviser, they may simply be wishing to validate their original reason for hiring one, or they could be looking for a change. Mergers and acquisitions may also prompt reevaluation, as, due to the recent “tremendous” amount of consolidation in the adviser space, sponsors may want to vet the service structure or culture of the new organization, he said.
“Where we see most of our search work is when the committee chair itself or a very senior staff person has a very heavy hand on the management of the plan,” Scheinberg said. “When that role has changed, the new person comes in and gets settled for the first six months or so, and then they want to start looking around and making sure that, ultimately, they like the team they’re with—or possibly want to consider something new.”
As sponsors evaluate their relationships, they should be prepared to ask questions that are “culturally uncomfortable” but that are generally acceptable in the financial services industry, said David Morehead, vice president at OneDigital in San Diego. Questions such as “How much are you getting paid?” or “What is your compensation for this plan?” are straightforward and important to ask, because fiduciaries should be aware of an adviser’s or service provider’s pricing model, he said.
When vetting to fill an adviser role, plan sponsors should expect an adviser to be able to answer their questions about most general retirement issues, on the spot, Massa said.
“This is part of the interview process. Am I dealing with a competent professional, or am I dealing with someone who doesn’t deal with this every day?” Massa said. “I’d take time to try to come up with a few of those questions. Some may affect your company, some may not, but it tells you about the person’s knowledge of ERISA [Employee Retirement Income Security Act], their knowledge of the IRS tax code and whether they are a retirement professional or just an investment professional.”
It is also important for advisers to explain exactly how, for instance, they handle managed account investments or how specifically they plan to give participants advice, Massa said. “You want to make sure they’re going to spend time with the employees—that they’re going to actually educate them and not just hand them off to a computer program. To me, that’s not advice,” Massa said.”—DJ Shaw
Art by Gérard Dubois