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Client Service March 1, 2024
Financial Advisers Push to Manage 401(k) Assets
As demand increases for more holistic financial planning services, firms are looking to expand the market of financial advisers managing 401(k) assets.
Reported by Natalie Lin
Art by Anja Susanj
In the past, firms connecting financial advisers to qualified retirement plan investments as well as the advisers working with clients on their 401(k) assets might have been reserved for high-net-worth clients, or even left separate from other investments.
But a combination of demand for holistic financial services, along with technology, may bring financial advisers and 401(k) plan management closer together, according to industry players. For financial advisers who were managing defined contribution assets, there’s now an easier system to do so; for those who aren’t, a growing need for financial advice among workers who have been saving in DC plans for decades may prompt them to start looking for a solution.
Firms such as Pontera are facilitating the management of 401(k) plans on behalf of their customers. “What we are today is a company that provides adviser insight and the ability to manage customers 401(k)s,” says Yoav Zurel, Pontera’s co-founder and CEO. “Our platform is used by thousands of financial advisers serving their clients across the country.”
Filling the Void
Jay Jumper, founder, president and CEO of Future Capital, says he started his business after seeing a need to connect financial advisers to qualified retirement plan investments. At the time, his mom had retired from the local school board with $54,000 in her retirement account, and he was working at what is now Truist Bank in the trust department, managing high-net-worth customers.
“What I saw very quickly as nobody was really there to help my mom manage her $54,000 like somebody would make a high-net-worth customer,” Jumper says. “I saw that there’s a lot of people like my mom out there, and they happen be holding a 401(k) or 403(b) in the DC marketplace. That’s really what got me started, going after this large pool of assets with few trusted advisers attached to these assets.”
He says the gap in the marketplace remains for providing advice to 401(k) participants, with only 3% having a relationship with a financial adviser. Among the 3% of advisers, approximately 90% to 95% of the do not allow their advisers to help their customers 401(k) assets.
“It’s all about access,” Jumper says. “The retirement providers don’t necessarily want to give access to advisers. The big thing that everybody’s talking about is convergence to wealth and retirement. What most people think is wealth getting into retirement. But convergence goes both ways, because retirement is going through the retirement relationship with a participant to get the wealth assets. Unfortunately, retirement providers have the upper hand because they have the data that wealth advisers don’t have.”
Password Management
Pontera’s CEO Zurel also saw a void in the financial advisement space in connecting advisers with 401(k) assets—but in his case, it was largely about overcoming friction points that would turn off advisers and participants from DC plan management.
He says if advisers aren’t using software like that from Pontera’s, they have two cumbersome options to help customers with password and login management.
“Option A is to basically ask for a customer’s power of attorney, collect login information from the customer and then log in on behalf of the customer to effectively conduct trade inside these accounts,” Zurel says.
While this is a commonly used practice, he says the method comes with significant hurdles in terms of cybersecurity management and auditing requirements and creates a lot of overhead for the advisory firm.
“Then the second path is what we call the homework model where advisers essentially ask customers to send paperwork from the 401(k) and the adviser processes the paperwork internally and then shoots back an email to the customer recommending the trade that should happen,” he says. “That can be extremely frustrating for the customer who has chosen an adviser for a reason, and now they need to go and do all the homework by themselves.”
According to Zurel, Pontera’s technology offers efficient management of these 401(k)s that does not involve homework for the customer or collecting their username and password. Pontera can connect advisers with a portfolio through a customer-permission experience.
“The adviser sends out a link from our platform via email and then the customer connects their account into Pontera,” he says. “Once the connection has been established the adviser is able to receive an analysis of the account, fund lineup, trade restriction, performance reporting, auditing and management of the accounts.”
Working With An Advisor
From the side of financial advisers, the technology can help prompt them to incorporate defined contribution savings into their client’s portfolio management.
Stephanie Roberts, partner, vice president and wealth manager at Haase Family Advisors at Steward Partners Global Advisory, said her firm recently obtained access to Pontera’s platform.
“What we found for a lot of our clients is that these retirement plans are extremely confusing. There are a lot of little nuances to them,” she says. “The questions of Roth versus pretax percentage contributions to make, how to invest their portfolios, thinking about rebalancing over time, all of those questions can be a little bit overwhelming.”
Roberts says for clients who want to offload decision-making on their workplace retirement plans, Pontera allows advisers to view and rebalance their clients’ 401(k) assets via its client-permissioned platform. When it comes to advising on workplace savings along with other assets for clients, she says the firm is continually deepening the breadth and depth of its planning work.
“401(k)s have always been an important part of the equation because they’re typically such a large portion of the client’s wealth,” she says. “It’s also so important that we harmonize their investments outside of their retirement plans with what’s going on inside the retirement plan. We don’t want to be working against each other where we have one portfolio set up for aggressive growth and one for an extremely conservative portfolio unless we’re doing that on purpose.”
