Convergence Is Changing the Adviser Landscape; Let’s Make Sure It’s for the Better

The past few years have seen a rapid shift in the retirement plan industry due to regulatory changes, mergers and acquisitions, and an emphasis on the convergence of plan advisement and individual wealth management.

As advisers work through this transformation, recognizing and tackling the inherent challenges and opportunities is essential. There are complex issues associated with the integration of financial services and retirement plans. Comparing these developments to those in the health care sector allows for exploration of innovative strategies to enhance participant engagement and secure financial stability.

Evolution From B2B to B2B2C

Shane Hanson

Historically, retirement plans operated within a business-to-business framework, primarily serving employers and plan sponsors. However, the growing demand for financial wellness coupled with the pursuit of additional revenue streams has led to a business-to-business-to-consumer model, emphasizing participant engagement and personalized service delivery. Tfihis evolution reflects a fundamental shift toward prioritizing the needs and preferences of plan participants, reshaping the dynamics of retirement plan management.

Fragmentation and Disparities

Over the years, retirement specialist firms have migrated toward higher-end markets, raised minimum revenue requirements and encountered challenges in developing a profitable service model for smaller markets.

This move-up market has left a gaping hole in the small market for plan sponsors who desperately need specialized advice. Consequently, a significant gap has emerged in the marketplace, particularly affecting underserved plans in the small market segment. This gap persists due to the specialized nature of ERISA regulations, with wealth management expertise offering only limited overlap to retirement plan management.

The SECURE 2.0 Act of 2022, which prioritizes enhancing retirement plans, presents a substantial opportunity for wealth management advisers. We are on the brink of a retirement plan explosion across the United States, with limited infrastructure to meet the needs of these new plans, especially in terms of servicing them. There is an increasing demand for professionals skilled in navigating the complexities of retirement plans, as technology alone cannot provide a complete solution.

Fragmented Tools and Services

The retirement plan industry is faced with significant challenges due to the fragmented nature of tools and services available. This fragmentation makes it difficult for advisers to achieve seamless integration and provide comprehensive solutions, especially with the diverse systems designed for plan sponsors. Such fragmentation hinders operational efficiency and compromises the delivery of comprehensive services to plan participants.

Historically, the industry has been resistant to change, relying on outdated platforms not originally intended for retirement plan operations. Many recordkeeping systems are based on mainframe technology, leading some recordkeepers to outsource their systems, sometimes even overseas. Broker/dealers and regional advisers often attempt to adapt wealth management systems and customer relationship management tools for retirement plan servicing, despite these systems not being designed for such purposes.

The traditional ecosystem of technology and service within the retirement plan sector is both fragmented and challenging. With the vast array of tools available, it is exceedingly difficult to find a solution that addresses daily service needs, investment software, plan document storage, retirement plan-specialized customer relationship management, educational materials, fee benchmarking and, most importantly, participant engagement. While there are excellent tools that can address one or a few of these needs, finding a solution that does all of them well, efficiently and in an integrated manner, remains a substantial challenge.

Data-Driven Engagement Disparities

The shift toward a data-driven approach intensifies the disparities in engagement capabilities, especially for advisers. While recordkeepers utilize data to engage with participants seamlessly, advisers frequently face challenges due to the lack of robust API integrations. Many recordkeepers still lack the capability to provide a book of business reports that includes participant data and contact information, for instance.

This limitation restricts an adviser’s ability to offer personalized and timely financial advice. Such disparities weaken the adviser-client relationship and reduce the effectiveness of strategies aimed at engaging participants. Lacking access to participant data and a platform for personalized engagement, advisers are now in search of solutions that go beyond the basic service model of a retirement plan; they require a platform dedicated to engagement.

This issue becomes even more pronounced for smaller plans due to their lower profit margins. If the push toward convergence emphasizes the value of participants, shouldn’t that be our starting point?

Attempting to secure a rollover while funds are transitioning, without any prior engagement, is a misguided approach that will not yield the best outcomes. Building a relationship is crucial, and the foundation of a relationship is personalized engagement—delivering the right message at the right time, from Day 1.

Advisers should not assume they are entitled to manage rollovers from a 401(k) plan without having made efforts to earn that position. Relationships are built on effort, time and trust. When this approach is executed effectively, it not only benefits the adviser, but also allows participants to receive more personalized solutions tailored to their needs.

Fee Compression and Cybersecurity

Recordkeepers continue to face fee compression amidst escalating demands for enhanced services and cybersecurity measures. This compression, partially driven by advisers’ insistence on lower costs, prompts recordkeepers to explore alternative revenue streams, including ancillary product offerings targeted at participants. However, concerns arise regarding potential conflicts of interest and the prioritization of financial incentives over participant welfare.

Lessons From Health Care: A Comparison

Drawing parallels with the health care industry highlights the importance of data connectivity and participant-centric strategies in both sectors. Just as health care providers strive to build data connectivity exchanges to streamline patient care, the retirement plan industry must prioritize interoperability and data security to enhance participant engagement and financial outcomes. By leveraging technology and data analytics, firms can gain deeper insights into participant behaviors and preferences, facilitating more targeted and effective engagement strategies.

In the realm of retirement plans, recordkeepers serve a crucial role akin to health care providers. They meticulously organize and safeguard vital financial data, much like health care providers maintain and protect patient medical records. Just as health care providers work to build data connectivity exchanges to streamline patient care, retirement plan recordkeepers must strive to create efficient platforms for financial data exchange.

Similarly, advisers on retirement plans can be likened to doctors: They offer expertise and guidance tailored to individual needs, much like doctors diagnose ailments and prescribe treatments based on patients’ unique health profiles. Advisers help navigate the complexities of retirement planning, just as doctors assist patients in understanding their medical conditions and treatment options.

Lastly, plan participants correspond to patients. They are the ultimate beneficiaries of the system, relying on both recordkeepers and advisers for a secure financial future, just as patients depend on health care providers for their well-being. Like patients, plan participants benefit from improved data connectivity, which facilitates smoother transactions, quicker responses to inquiries and, ultimately, better outcomes in retirement planning.

Solutions for a New Chapter: Integrated and Participant-Centric Approaches

A unified adviser ecosystem centralizes data and automates service delivery, enabling advisers to focus on proactive and consultative engagements. This streamlined approach enhances the client experience and maximizes operational efficiency, fostering stronger adviser-participant relationships. It is time for a new chapter when it comes to retirement plan service models, especially when it comes to participant education. Imagine an advisor ecosystem that leverages data in one place and automates the entire service experience so the adviser can focus on being proactive and consultative.

Imagine an ecosystem in which one can, with a single click, generate customized educational materials and enrollment presentations and instantly produce a tailored plan health report for the plan sponsor, including metrics, compliance details and investment data without manual effort. Appreciate the ease of clients logging into your system to interact with their plan data and fiduciary document vault, eliminating the need for multiple portal redundancies and allowing you to store meeting minutes, benchmarking data, agreements and more all in one place. Envision a feature where integrated plan metrics enable you to request benchmarking, and providers can submit their responses directly in their portal for client presentation.

Picture, also, a system that automatically notifies clients of key deadlines specific to their plan year and documentation, schedules educational meetings and trustee reviews without manual input, and tracks every call, email, meeting and minute spent on a client per plan for a deeper insight into client profitability based on real data, not estimates. Imagine a system that monitors compensation from the recordkeeper, manages invoices and alerts you to incorrect or missing payments. Consider a tool that tracks the 3(16) tasks of the plan, clarifying client responsibilities and task ownership.

Finally, envision a system capable of sending personalized and targeted communications to all plan participants throughout the year based on data that can be automated or sent through a single click. This system would send personalized welcomes to the plan with enrollment steps and actionable advice, offer investment reviews, assistance with external assets, beneficiary reviews, reminders to maximize company matches and more. The culmination of this process is personalized, timely engagement for service separation, offering options and scheduling a call. This engagement is vital for introducing advisers to participants, building relationships and maximizing those relationships when participants need guidance during their separation from service.

This is what a fully automated and modernized retirement adviser system looks and feels like, and it is just Version 1.0.

Participant-Centric Engagement

Embracing a participant-centric approach entails leveraging personalized communication throughout the year. Automated messages tailored to individual needs and milestones foster meaningful relationships, laying the groundwork for effective engagement and trust-building. By prioritizing participant needs and preferences, stakeholders can enhance the overall participant experience and drive positive outcomes.

Partnership and Collaboration

Cultivating a culture of partnership and collaboration within the industry is crucial for addressing challenges and driving innovation. By leveraging each other’s strengths and resources, advisers can deliver holistic solutions that prioritize the best interests of plan participants. By fostering a collaborative ecosystem, advisers can overcome fragmentation and inefficiencies, leading to better outcomes for all stakeholders involved.

Unique Opportunity

The convergence within the retirement plan industry presents a unique opportunity to redefine the future of retirement plans. By addressing the challenges associated with fragmentation, engagement disparities, fee compression and cybersecurity, advisers can unlock the full potential of this convergence and empower individuals to secure their financial futures.

By prioritizing participant engagement, embracing technological advancements and fostering industry partnerships, advisers can navigate the complexities of this evolving landscape and drive positive outcomes for plan participants and the retirement plan industry as a whole.

Shane Hanson is president and CEO of Freedom Fiduciaries.