Cultivating Connections
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 still face 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 firm 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,” says Parks, Ubiquity’s CEO, from the firm’s offices, in San Francisco. “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, in Mount Pleasant, South Carolina, 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 LLC buying West Point Business Group; Merit Financial Advisors acquiring Allegiance Retirement Solutions Inc.; and, in 2021, Creative Planning purchasing Lockton’s retirement business.
This past January, investment advisory Carson Group announced a partnership with 401(k) recordkeeper Vestwell to provide a defined contribution retirement offering for its adviser network.
Carson Complete 401(k) was designed to address “key friction points” for financial advisers in providing a retirement solution, the two firms said at the time.
“With significant tax credit expansion offered to small businesses through the SECURE [Setting Every Community Up for Retirement Enhancement] Act, along with affordable fintech solutions driving down the costs for advisers, now is the time to take advantage of this market opportunity,” said Aaron Schumm, CEO and founder of Vestwell, in a statement.
Defensive Play
John Faustino, head of retirement products for Broadridge, in Kalamazoo, Michigan, notes that wealth managers often work with small-business entrepreneurs who might own “a couple of muffler shops, or a few Dairy Queens, with 20 or 30 employees.” Often, while those advisers may know Securities and Exchange Commission regulations, they may be less aware of Department of Labor or Employee Retirement Income Security Act rules needed for working with qualified retirement plans.
“There’s a need for wealth advisers and wealth-centric firms at the home-office level to find partners that find an easy-button solution for things such as startup 401(k) plans,” he says. “There are several firms … that can take on a lot of the administration requirements for advisers but also allow them more flexibility to get involved if the plan grows.”
These days, Faustino says, some state mandates are starting to get teeth, with the goal of ensuring that business owners have a workplace plan. More small-business owners in places such as California and Illinois, for instance, are receiving notifications that they must have a 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 we’ll see a defensive play from wealth advisers, where they realize they’re going to have to get involved with this plan game to better support their clients, and, if they don’t, people will go after that business,” he says. It is hardly all about defense, though. Faustino says wealth managers may parlay that work into advising other senior members of the business’s team, plus 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 are 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 midsize 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.”
What any smart firm in the wealth management space is doing is trying to add that layer of convenience [for its] clients.
The Convergence Writ Small
Parks says having relationships with financial advisers is some 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 that 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 such as ours or others out there that are adviser-friendly to complement them.”
It is not just 401(k) benefit planning that wealth managers are starting to partner on or to bring in-house, says Jamie Hopkins, senior vice president and director, private wealth management at Bryn Mawr Trust in Bryn Mawr, Pennsylvania. 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’re 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 it wants 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 [for its] 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.”