Retirement, Wealth Expected to Continue Convergence in 2024

The convergence of retirement plan advisement and individual wealth management will continue at a strong clip in 2024 due to both market drivers and a focus on providing more holistic financial services to investors, according to two industry prognosticators.

The retirement and wealth advisory division of Marsh McLennan Agency, a Marsh McLennan business, noted the merging of wealth and retirement planning among its four “innovations and challenges in finance” for 2024.

“As markets continue to fluctuate, individuals are emphasizing long-term financial planning related to their retirement and their complete financial future,” MMA analysts wrote. “Financial advisers are making a transformative shift in their approach to address this movement, moving toward holistic, client-focused strategies that merge retirement planning and wealth management.”

Separately, in a report issued Tuesday, consultancy EY named as one of its 10 resolutions for wealth and asset managers “increasing investor engagement and providing better outcomes to a larger pool of clients.”

That larger pool, says Mike Lee, EY’s global wealth and asset management leader, includes a growing interest to expand wealth services to workplace retirement plans.

“There’s definitely an interest that we’ve seen in the industry toward that retirement space in terms of retaining those clients when certain changes occur,” he says. “There’s also a retention play in here in terms of retaining those assets by supporting clients beyond traditional retirement services.”

In what seems a sign of things to come, registered investment advisory and retirement plan advisement firm CAPTRUST  made its first deal announcement of the year last week with the acquisition of a $770 million wealth advisory, on the heels of a robust 2023. That followed acquisition announcements by SageView Advisory Group and Hub International Ltd. earlier in this month, with more sure to come as the year progresses.

Specialists Wanted

MMA, which has noted an ongoing strategy of building out its retirement and wealth practice, conducted a survey of wealth managers that, according to the advisory, confirms that firms are actively looking “to meet the rising client demand for comprehensive financial guidance.” The consequence of the shift, MMA analysts wrote, will mean “individual are better prepared to make well-informed decisions about their financial well-being, regardless of their life stage.”

Within that research, MMA found that almost half of advisories looking to expand into retirement are looking to hire experienced advisers. But for that to realistically happen, notes Craig Reid, president and national practice leader for MMA’s retirement and wealth practice, mergers and acquisitions in the industry will have to continue.

“There is a distinct difference in skills needed to be a great wealth adviser versus a great plan adviser,” Reid says. “Talented plan advisers are generally those who have been with the same firm for a number of years, have amassed a sizeable book of business and are very difficult—i.e. expensive—to ‘hire away.’ It’s not impossible, just difficult.”

Reid says it would be even more difficult for a “wealth shop … to demonstrate enough value to a plan adviser to entice him or her to jump ship.”

The reason, he notes, is simple: Opportunities for client leads and introductions for plan advisers to wealth advisers are more likely, and plentiful, than going from wealth to retirement plans.

“If a wealth practice wants to expand into the retirement side—which they ultimately should because of opportunity for leads and growth—it will be either through acquiring or selling to a retirement business,” he says. “The ‘may hire an experienced adviser’ approach will be a recipe for slow growth and possible failure in today’s extremely competitive industry.”

Tech, Branding

EY’s Lee agrees that the bar can be high for wealth managers to successfully engage in qualified retirement savings, noting that success will hinge on several factors.

One key is having the technology, such as the right digital consumer offering, to provide the financial planning and wellness tools to serve participants who are not higher-net-worth. Another key is having the branding and relationships in place to successfully engage individual clients.

“Do you own the relationship or are you white label?” he asks. “If you were in a servicing role, and now you’re augmenting that with product offerings, that’s a very different type of relationship. What is your ability to scale the business, and what is your digital offering beyond the retirement services offering itself?”

Lee says there is “more to come” in the area of wealth and retirement convergence, but it will still take a “fair amount to work on around participant experience, the agent and adviser experience, branding, capabilities and abilities to scale with technology.”

EY’s 10 resolutions for wealth and asset managers in 2024 also included a push toward democratizing alternative investments by making them available to more investors. When it comes to retirement plans, Lee notes, people often do not think of alternatives as a good fit, when in fact they are set up well to be held as longer-term investments.

“Retirement plans are a decent place to put alternatives,” he says. “There is a sensible conversation that can happen there if the portfolio is set up so [the investor] understands when [they] can or cannot get out of it.”

Concerns Remain

To be sure, not everyone in retirement plan advisement sees the continued merging of retirement plan and individual wealth advisement as a positive. Earlier this month, when commenting on the Department of Labor’s fiduciary proposal, plan adviser Mike Francis of Francis LLC cautioned the industry on the “cost of conflicted investment advice to retirement plan participants.”

He argued that the Employee Retirement Income Security Act, designed to protect American workers’ retirement assets, had not fully anticipated “the evolution of employer-directed pension plans to employee-directed 401(k) plans” by which participants would be managing their own retirement savings and withdrawals.

Further, a report issued by Cerulli Associates Wednesday noted that, if the new fiduciary proposal goes ahead, it may hinder advisers’ influence on 401(k) participant rollouts to individual retirement accounts, in turn hindering some of the benefits of the convergence. Nearly two-thirds, or 63%, of the $845 billion in assets rolled over from defined contribution plans in 2022 were rolled into IRAs with the assistance of a financial adviser, according to the firm.

“As wealth management firms continue to pursue opportunities in the Employee Retirement Income Security Act of 1974 (ERISA)-covered retirement plan space, they will need to navigate and overcome new and pending regulation imposing more stringent fiduciary requirements when recommending IRA rollovers,” the consultancy wrote.