Practice Management February 23, 2024

401(k) World: Retirement Plan and Wealth Advisement

The second story in PLANADVISER In-Depth’s series on the 401(k) market considers the convergence of retirement planning and wealth management—a trend whose outcome is far from written.

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Art by Melinda Beck
401(k) World: Retirement Plan and Wealth Advisement

According to surveying done by T. Rowe Price, 100% of large retirement plan advisories are now providing wealth management strategies to plan participants. According to some in the industry, that trend is likely to continue in coming years as participant wealth management needs grow.

Offering both plan advisory and wealth management services makes sense from several perspectives, including higher profit margins than plan advisory work, according to the T. Rowe report. But it is also a growth path for plan advisers, says Peter Campagna, a Nevada-based partner in the Wise Rhino Group. He notes that having existing relationships with sponsors facilitates cross-selling of additional services because the companies’ decisionmakers know the vendors.

Convergence also fits with the ongoing shift to personalized advice, Campagna adds. Defined contribution plans have evolved “beyond just a menu and a QDIA choice” as participants search for more personalized, holistic financial planning. He says it makes sense that participants want this customized advice, and approaching them through their 401(K) plan is credible and efficient.

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Troy Hammond, CEO of Pensionmark in Santa Barbara, California, agrees that plan sponsors and participants want access to wealth management services. But it was not always so: The need has evolved over time along with the defined contribution space.

Pensionmark focused on participant services from its inception as an institutional plan consultant 30 years ago, says Hammond. The firm’s wealth management business grew from participants’ desire for help managing their finances. Not all sponsors want a combined service, and he adds that Pensionmark presents wealth management as an option to plan sponsors.

Meanwhile, mergers and acquisitions continue bringing retirement planning and wealth closer together, and most industry actors are no longer asking if convergence is a good idea, but how to best do it to meet growing demand.

Jania Stout, a senior vice president of retirement services at OneDigital, noted on a recent PLANADVISER webinar that she had resisted adding wealth management to her practice until she felt the client need was too great and she did not necessarily trust the managers she was sending her clients to. She recalled, in particular, a moment when a colleague noted to her that, if she wasn’t prepared to offer wealth management options, she would be turning away longstanding participant clients at a time when they might need her most.

“Hearing it that way, I started to believe that I was wrong,” she said during the panel session. “I needed to continue to help those employees, and if I didn’t, who knew who would? It wouldn’t be such a great adviser if it wasn’t someone from our team. We are now fully embedded in the wealth side of the business as well.”

That same panel of experts, however, noted the challenges of having the staffing and resources to serve both retirement and wealth—with Stout, an award-winning adviser, noting scale as one of the reasons her firm joined OneDigital in 2021.

Small Accounts, Big Need

That staffing concern goes both ways, as wealth managers are also figuring out how to manage client accounts with fewer assets, says Jamie Hopkins, a senior vice president and director of private wealth management with Bryn Mawr Trust in Bryn Mawr, Pennsylvania.

“The reality is a lot of the RIAs and wealth managers out there don’t want to serve accounts with under a $100,000 or $200,000,” he says. “Unless you have a brokerage or simple investment plan management system out there, it’s really hard to service that group.”

“The reality is a lot of the RIAs and wealth managers out there don’t want to serve accounts with under a $100,000 or $200,000,” says Jamie Hopkins, a senior vice president and director of private wealth management with Bryn Mawr Trust. “Unless you have a brokerage or simple investment plan management system out there, it’s really hard to service that group.”

But sponsors, according to Campagna, are increasingly looking to provide more robust wealth management services to participants. He maintains that technology can provide the scale and cost efficiency required to service less wealthy participants profitably, but it should be a combined service offering.

“You can’t just say, ‘Alright, go talk to the app,’” he says. “That’s not enough. It should be a little bit of a personal interface and a lot of technology to help them answer their questions, which probably aren’t that complicated. If someone has a little more retirement savings and maybe other financial situations, I think it turns into something like a 50/50 [personal advice and technology].”

Hammond agrees it is a logical business model for many wealth managers to focus on wealthier participants because that group’s assets generate higher revenue and present more service opportunities. In contrast, servicing participants with smaller accounts is “a tough space to make money in, and you have this balancing act of wanting to make sure you’re delivering a premier service, but that premier service is expensive,” he says. “How do we charge enough with these smaller asset pools?”

Pensionmark’s solution is to invest extensively in technology and home office staff to provide a centralized, low-cost service for participants with smaller balances. Managing and servicing those accounts with a home-office platform enhances investment management for participants, increases advisers’ efficiency and frees up their time, Hammond says: “It’s not like we’re going to build an empire on that business, but there is a margin there, and we can make it work.” That approach “allows us to serve everybody, which, philosophically, is how we approach this,” he adds.

Conflicts of Interest?

Naysayers do remain, arguing that plan advisers can run a robust practice without wading into the potential conflicts of interest that exist in selling higher-fee wealth management services. Mike Francis, president of Francis LLC in Milwaukee, argues that wealth management services can present conflicts of interest, and plan advisories can run successful businesses with a fee model similar to an accounting firm or law practice.

“We’re very focused as an organization,” he says. “We offer investment consulting and plan consulting services to qualified plan sponsors. We also offer what I’ll call financial wellness services to those same organizations’ employees.”

Francis tells clients and prospects that his firm is always an ERISA fiduciary when dealing with sponsors and participants. That approach has been a fundamental value proposition for the firm since its inception. The result is that sponsors can be confident about giving Francis LLC access to employees, he says. Sponsors “know that we are truly sitting on their side of the table with nothing to sell; we’re strictly there as an ERISA fiduciary investment adviser.”

Hammond of Pensionmark, however, says both can be true, with his firm acting a fiduciary firm to all its clients.

“By being a fiduciary on both sides of that coin, we’ve always had to implement procedures and processes to ensure that we are complying with all of the regulatory requirements and that we are addressing all of those potential conflicts of interest,” he says. “I think you’ll find that most of the larger firms like us that are converging wealth and retirement are going to put a lot of energy towards that regulatory compliance. As long as you cross all the T’s and dot all the I’s and have all the processes and procedures in place, you can address those [conflicts].”

“I think you’ll find that most of the larger firms like us that are converging wealth and retirement are going to put a lot of energy towards that regulatory compliance,” says Troy Hammond, CEO of Pensionmark. “As long as you cross all the T’s and dot all the I’s and have all the processes and procedures in place, you can address those [conflicts].”

During the February wealth convergence webinar, Craig Reid, president and national practice leader of retirement and wealth at Marsh McLennan Agency, a subsidiary of Marsh, said the convergence is ultimately serving a market need that advisories must address or be left behind.

“It makes it so much easier when you are managing both their retirement plan and their individual wealth: You can see a clearer picture, you can talk to your wealth partners or your retirement partners about what’s happening in or outside of the plan,” Reid said. “This is driven by customer demand, and technology is able to support the needs they are demanding today. … I think having both sides of the house at play answers the demand for a more holistic view.”

Next week, our PLANADVISER In-Depth series will consider recordkeepers and DCIO asset managers.

 

More on this topic:

401(k) World: The Piggy Bank
401(k) World: Recordkeepers, Advisers and ‘Coopetition’
401(k) World: DCIO Managers Adjust to Fee Pressures
401(k) World: Cyber Thieves
401(k) World: The Litigators
Client Service February 23, 2024

Advisers Giving Back: Brad Holdhusen and the Father’s Club

The Prime Capital Investment Advisors adviser discusses a grassroots organization to promote fathers’ involvement with kids and communities.

Reported by
Art by John Cuneo

Art by John Cuneo


People attending a Kansas City metro area high school football game may sometimes see a peculiar thing: fathers from opposing teams meeting up on the sidelines to talk and have some laughs.

While Brad Holdhusen likely won’t be at that game—three of his four kids are now off to college—he may have had a hand in the camaraderie among opposing sides. That’s because an organization he started at his own kid’s school in 2018, now called the Father’s Club, has more than 25 chapters in the region bringing dads together who might otherwise never have met.

Holdhusen, a wealth adviser and qualified plan specialist with Prime Capital Investment Advisors and Qualified Plan Advisors, started the venture with friend Vince Stephens when their kids attended Blue Valley High School in Stilwell, Kansas.

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Holdhusen and Stephens had noticed some issues within the school community, including opioid use, and wanted to get involved. In a meeting with the administrators at the time, Holdhusen says the pair didn’t have an exact plan, but knew they wanted to be more involved, and figured many other fathers may as well.

“I had a vision of fathers locking arms around the school in a literal and physical way,” Holdhusen says.

After that conversation, Holdhusen brought together a group of dads on his back deck to discuss how they could become more involved in their kids’ lives and communities. The first activities of Father’s Club were close to Holdhusen’s original vision: he and a group of dads would show up at the school with food, music, and a few dad jokes.

“We’d surround the school with dads,” Holdhusen says. “We’d bring some type of food—chicken, biscuits, burritos, doughnuts, whatever. And we’d play music, in some cases real loud music on a huge boombox …. We’re all about getting the kids to smile, laugh, and have some food to start their day right.”

Father Days

From that beginning, the Father’s Club began to add elements of engagement and community building. Holdhusen and Stephens would hold meetings to discuss ways of learning about and helping their communities on issues such as mental health, teen suicide, substance abuse, technology addiction, self-worth, and anxiety.

Part of the goal also became helping men to feel confident enough to step up more with their families and communities.

“The goal is not to say we’re better than moms or that we want to outshine moms because, quite frankly, moms have kicked our tails for years in involvement, volunteering and engaging at the schools with the kids,” he says. “It’s more about getting dads involved in a very intentional way.”

The organization formed a board and registered as a 501(c) (3). It now has 25 chapters, with more to be added this year.

The group holds events throughout the year, both as a whole and by region. These include exercise meet-ups, happy hours, and an annual golf fundraiser. It also holds education awareness training in areas related to community building, including mental health assistance, technology addiction and gun safety.

The work has led to real impact, Holdhusen says, with parents in need sometimes coming to them for help. The group has helped families with donations for things like clothing or braces. The dads attend school events and host fun activities for kids. One group of dads put on a halftime show at a basketball game and then handed out pizza to the crowd.

“It might just be impacting a kid who doesn’t have a lot of interaction and friends,” Holdhusen says. “But he looks forward to Friday afternoons when a dad he sees all the time comes in and gives out some candy and tells some cheesy dad jokes. So again, it’s simple things and not over-engineered.”

Showing Up

In some cases, the message to fathers to “just show up” has been as important for the dads as it has their communities. Holdhusen recalls speaking with one man who, seeing the club’s activities, said, “well, that’s not me, I’m just not that kind of dad.”

Holdhusen engaged him, telling him that “none of us are perfect dads. We’ve all screwed up 100 times in our life as a dad, but we’re learning together, and we’re trying to do better together.”

Holdhusen says that now the organization works on its own with him in the background. His good friend and co-founder, Stephens, passed away in March of 2023. Holdhusen recalls the man’s big heart for both his family and his community and sees the Father’s Club as carrying on that memory.

“There’s nothing better in my opinion than to be a catalyst for something good, and be a nameless catalyst by the way,” Holdhusen says. “I tell my board all the time: Our hope and our success will come in 20 years from now when nobody knows any of our names … [and] nobody knows who started this or why it started. But they’re just so glad that they’ve got Father’s Club in their school and in their community. That is the definition of success.”

This story is the relaunch of a series called Advisers Giving Back. If you know of an adviser or advisory doing charitable work, please email us at advisers@issgovernance.com. 

 

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