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.

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.

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.