Why Wealth Managers Are Engaging Small Retirement Plan Startups

Art by Miriam Martincic

In 1998, Chad Parks was a financial planner frustrated by his inability to help small business-owning clients start workplace retirement plans. His response was to leave the practice and start his own firm, which became small plan industry mainstay Ubiquity Retirement + Savings.

Fast forward to today. Financial advisers are still facing the same queries from clients about workplace plans—sometimes, in recent years, as driven by state mandates—but the advisers no longer have to leave to start their own firms to help provide solutions. Now there are a host of 401(k) providers and government-facilitated options that can handle the administrative, investing and fiduciary roles that qualified plans require.

“I was that financial planner and registered investment adviser to my clients, and I couldn’t find a solution,” Parks, Ubiquity’s CEO, recalls. “So we’ve had that as our roots, and we welcome that, and we always make room for advisers, whether wealth advisers or retirement advisers.”

The convergence flowing from retirement plan advisement to wealth management with a goal of servicing participant assets has been a major industry trend in recent years. In the small plan market, however, the flow is starting to get stronger from the wealth management side, according to consultancy MarshBerry.

As the firm’s Rob Madore, a vice president, has pointed out, there has been a small, but potentially growing trend of wealth managers bringing retirement plan services in-house. Notable deals have included Carson Group’s acquisition of Northwest Capital Management; Savant Wealth Management adding Capital Direction; MAI Capital Management LCC buying West Point Business Group; Merit Financial Advisors acquiring Allegiance Retirement Solutions Inc.; and, in 2021, Creative Planning acquiring Lockton’s retirement business.

Jamie Hopkins, managing partner of wealth solutions at Carson Group, says he cannot speak to an overall trend in wealth advisers buying retirement plan startups by the numbers. But he confirms that Carson Group has recently put effort and resources into having a strong 401(k) offering for its advisers.

“In terms of our focus as a company, we have moved more and more into this space purposefully,” Hopkins says. “We have looked at the market, and we think it’s an opportunity; we hear it from our advisers … and we have shifted.”

Carson Group had brought in a partner with a 401(k) book of business about 18 months ago to serve larger plans, Hopkins says. But the firm had been noticing its wealth managers receiving requests from clients with businesses to start a small 401(k) plan, a solo 401(k) or a cash-balance plan.

“Those three would represent 99% of what we run into,” Hopkins says.

That led Carson Group to vet a variety of small plan 401(k) providers and ultimately establish a preferred partnership—though not exclusivity—with Vestwell, earlier this year. Since that move, Hopkins says more than 80 plans have signed on with Vestwell in the last nine months .

“It has been really good to arm advisers with that toolkit to help their clients set up plans,” he says.

Defensive Play

John Faustino, head of retirement products for Broadridge, notes that wealth managers are often working with small business entrepreneurs that might own “a couple of muffler shops, or a few Dairy Queens, with 20 or 30 employees.” In many cases, while those advisers may know Securities and Exchange Commission regulations and needs, they may not be as aware of Department of Labor or Employee Retirement Income Security Act rules needed for working with qualified retirement plans.

“There is a need for wealth advisers and for wealth-centric firms at the home office level to find partners that find an easy-button solution for things like startup 401(k) plans,” he says. “There are several firms out there … that can take on a lot of the administration requirements for the advisers, but also allow them more flexibility to get involved if the plan grows.”

These days, Faustino notes, there are state mandates that are starting to get teeth with the goal of ensuring business owners have a workplace plan. More small business owners in places like California and Illinois, for instance, are getting notifications that they must have a workplace retirement plan in place or get fined.

The first point of contact such owners may turn to is their financial adviser, Faustino says, and if those advisers do not have an answer, they may soon be out of a client.

“I believe there is going to be a defensive play that we are going to see from wealth advisers, where they realize that they are going to have to get involved with this plan game to better support their clients, and if they don’t, people are going to go after that business,” he says.

It is hardly all about defense, however. Faustino says wealth managers may parlay that work into advising other senior members of the business’s team, as well as be a contact for those companies to manage participant wealth, should they get bigger.

“Working with these small plans can be like a lottery ticket,” he says. “There’s a good number of these companies that, in five years or so, may not be around, or get absorbed into another company. But some of those small companies grow to be midsized companies … and being able to engage a bit more holistically with those that grow is something [wealth advisers] can think about strategically in terms of how they address the opportunity.”

The Convergence Writ Small

Parks, of Ubiquity, says having relationships with financial advisers is part of his firm’s strategy for gaining clients, in part because marketing directly to small businesses is “expensive” and unrealistic. By working with financial advisement firms, Ubiquity can fill the gap by being a customizable, low-cost option that can handle the fiduciary responsibility of running a 401(k) plan. Meanwhile, the firm also seeks to work across benefits providers, large recordkeepers and payroll providers who also funnel through business.

“Several wealth advisers who at one point did not consider themselves a retirement adviser are realizing that they don’t have to be a retirement plan expert,” Parks says. “They have the relationship, they know what the numbers mean, they know what they need to do and they need to work with a firm like ours or others out there who are adviser-friendly to complement them.”

It is not just 401(k) benefit planning that wealth managers are starting to partner on or bring in-house, according to Carson Group’s wealth solutions head, Hopkins. In his view, the “fragmented” financial services industry is starting to bring together the various elements of client need, which includes insurance, investment management, tax services, 401(k) and trust and estate planning.

“We are going to see a convergence of those services being pooled in-house to the wealth management firms,” Hopkins says. “When you ask a client what services they want and you run down that list, then you ask advisers what they deliver, and they do planning, investment management, and then [their service offerings] start falling off a cliff.”

The further convergence, he says, comes from two key areas, with the first being basic client demand.

“This is what people are asking for from a clientele standpoint, so then the market moves to solve where the need is,” Hopkins says. “If clients want X, eventually you will give them X, or they will go to someone else who will give them X.”

The other element, he says, is the modern-day need for convenience that flows from development in technology and everyday consumption and living.

“What tends to win out today more than anything else is convenience,” he says. “What any smart firm in the wealth management space is doing is trying to add that layer of convenience to their clients. The fact that you can set up your 401(k) here with the same adviser, on the same technology platform, with the same experience that you are running your money with, your insurance with, your trust with—that creates a lot of convenience for a client.”