Retirement, Wealth Convergence Still in ‘Early Innings’

A panel of business leaders working to bridge plan sponsor advisement and wealth services for participants made the case for their business model, but also said this convergence is still in the “early innings” when it comes to execution.

Rob Madore, a vice president at MarshBerry who was moderating a session Tuesday at PLANADVISER 360 in Scottsdale, Arizona, asked participants to gauge where the retirement and wealth convergence is in the business cycle.

“We’re in very early innings,” said Ken Bond, the chief corporate development officer for World Insurance Associates. “This is a very hard nut to crack, and I think people set lofty ambitions of what success would look like. … But if you can crack, and get a little bit of a lift out of, an affiliated relationship with the wealth business or the retirement business, that is extremely helpful.”

Joe DeNoyior, president of retirement and private wealth at Hub Retirement and Wealth Management, said the market is more into the “top of the third” inning, continuing the baseball analogy. He noted that, as a large aggregator with a history of acquisitions, Hub used to bring on only pure retirement or pure advisory shops. More recently, it is bringing on businesses that are already serving both retirement plan and wealth clients when they join, which leads to quicker execution.

Meanwhile, DeNoyior said, the competitive pressure from the market is leading to more convergence, and “innings” are set to speed up before the “game” settles down.

“The pure wealth shops are doing the same thing [of convergence with retirement], just in reverse,” he said. “You also look at our recordkeeping partners that are focused on it and all the other financial institutions that are focused on it [such as banks]. … I think it’s the best model to serve and then get in front of all those people from a retail perspective.”

Craig Reid, president and national practice leader of retirement and wealth at Marsh McLennan Agency, a subsidiary of Marsh, agreed there is a long way to go, saying the industry was in the “top of the first, top of the second, maybe.”

Reid noted that “there are more [RIA] firms that are being created than are going away through acquisition. So that would suggest the industry is going to continue to expand. … There’s going to be continuous opportunity.”

Margin Play

Madore noted that revenue gains from working with participants—whether by providing a financial plan for a flat fee or providing advice for an annual fee—will often provide greater margins than just purely working with plan sponsors.

He said to the panel: “Here’s my statement, agree or disagree: Retirement-plan-only businesses are not going to be able to survive, long-term, without embracing the other half of their business.”

Bond, of World Insurance, agreed, saying, “embracing is the operative word” when it comes to providing wealth services to participants. But, he cautioned, that does not necessarily mean an advisory has to do that in-house; it could be done through a third-party solution or a partnership with other firms.

Whatever a firm does, Bond said it should make it is not “applying a service model or offering for a high-net-worth or high-net-worth client to a massive affluent or an emerging market or emerging client. You need to make sure that the service offering is appropriate for the client segments that you’re serving.”

Reid, of Marsh McLennan, took the view that a pure retirement plan business or pure wealth advisory can survive without embracing the other side, but “survive” would be the key word.

“Short-term, absolutely,” he said. “Mid-term, probably five to 10 years. Eventually I think there’s going to be a need to embrace the other side.”

DeNoyior said he believes the various advisory models—with an aggregator, independent or at a wirehouse—can work if done right, but success will depend on strategy and goals.

“I think those models all work, depending on what you’re trying to build,” he said. “I would just argue: Is it the wisest thing to do, [to] not embrace the other side?”

DeNoyior noted that working with high-net-worth clients is a “super-competitive” market, with clients being contacted frequently. Having the scale to serve the mass market, or “emerging” wealth clients, has more room for growth.

Ultimate Goal

Madore asked the panelists what the “ultimate goal” of bridging retirement savings and wealth management is, asking, “Is it purely altruistic? Is it purely financial? Or somewhere in between?”

“I think it has to be both,” said Hub’s DeNoyior. “In other words, we all talk about helping people accumulate wealth or accumulate assets in order to replace their paycheck when they get to retirement. Then, in the past, we kind of sent them on their way. … I just don’t think that makes sense. Why would we want to send them out the door when they probably have their most intimidating decision or series of decisions to make?”

That is the altruistic side, DeNoyior said, but he noted that there still “has to be a business case for it, right? You can’t go broke doing it.”

Bond, of World Insurance, agreed, noting that plan advisories often spend significant time building relationships with people when they are in the plan.

“It seems unfortunate that we’d have to walk away at the time of their greatest need,” he said, adding that even when people are in the plan, “they can still have wealth needs. They still have events that happen in their lives where getting more holistic advice would be helpful. And to the extent you can create that bridge, that’s certainly attractive.”