Broker-dealers critical to expand 401(k) coverage and help participants

At the heart of the convergence of wealth, retirement and benefits at the workplace are the professionals at broker-dealers who service retirement plans and advisers.

Though their work is crucial, these broker-dealer professionals struggle to get the necessary resources and attention of senior management, because the defined-contribution business is viewed as high risk and low margin.

At the InvestmentNews RPA Broker-Dealer Roundtable and Think Tank on Oct. 20-21, there was rapid-fire discussion about broker-dealers' biggest opportunities and challenges, as well as how to collaborate to support advisers, clients and their own organizations. (See the list of firms represented below.)

The main themes were getting reliable plan and participant data, providing access to retirement benefits to more employers and workers, and serving the participants ignored by traditional wealth managers and financial planners.

As with other roundtable discussions with record keepers, aggregators and chief investment officers, the industry focus has turned to serving the participants — a much bigger challenge than the DC industry has ever faced. Advisers and providers can't afford to provide traditional wealth management and financial planning to workers with limited assets and resources. But there are additional challenges.

Most RPAs don't have robust wealth management capabilities even to serve the wealthy. Karen DiStasio, head of retirement consulting services at Commonwealth Financial Network, said that all but one of the RPAs in her firm have these resources. On the other hand, most wealth managers have little interest in DC plans.

Data about participants are readily available in the wealth management world, but are limited in DC plans in part because of the global risk in releasing that information, said Abigail Benham, head of national accounts at John Hancock Retirement. And the technology used by plan record keepers is hindered by clunky, burdensome and complicated regulations. Finally, three parties — record keepers, advisers and plan sponsors – must agree to offer solutions, though they sometimes have competing interests.

No wonder, as Mike Griffin, head of sales and relationship management for retirement plan consulting in the workplace wealth solutions division at UBS, noted, that financial wellness is a failure, mainly because of lack of engagement.

Taylor Hammons, head of retirement plans at Kestra Financial, pointed out that wellness can be a bridge between wealth and retirement.

Shawn Daly, head of DC experience and product management at MML Investor Services, noted that fintechs like Vestwell may offer solutions because they can share data and offer leading-edge applications.

Participants need help understanding where they should spend their limited benefits budget, Benham said. But the broker-dealer group agreed that there's no tech solution available right now.

Access to participant data is critical, and the lack of access is frustrating, DiStasio said, as her firm has robust reporting on the wealth side.

Daly noted that the inability to access participant data limits his firm’s insight into which clients are using multiple services at his firm. That could help determine whether there's an opportunity or show how retirement plans are benefiting his broker-dealer through cross-selling.

Though the group agreed that environment, social and governance investing and pooled employer plans are interesting and widely discussed, there was little consensus on whether either should be a major initiative for B-Ds.

Don MacQuattie, senior vice president at Raymond James, said that the firm doesn't have a policy to offer ESG funds and that none were included in its 3(38) fiduciary solution. The jury is still out on PEPs, which could limit plan design options, MacQuattie said.

Government mandates offer a unique opportunity, said Adeline Wong, newly appointed head of retirement services at Cetera. That is especially true in California as a result of its automatic IRA program, and with wealth managers who must be offered simple solutions.

The group was bullish on health savings accounts. That's not just because of the obvious tax advantages, but also because it's easier to get participants to talk about them than about retirement or wealth, said Griffin, who spent 17 years at Merrill Lynch, which has an emphasis on HSAs. Daly noted that HSAs may be a good way to identify wealth management clients.

The industry must come together to provide cleaner, more robust data at the plan level. That can help with adviser supervision, which is a problem with held-away plan assets, said Tom Hendricks, vice president of investment products and services at Northwestern Mutual. Additionally, participant data is the needed fuel for the financial wellness engine, with tech being the chassis of the car and the adviser the driver.

Access to data might get easier if the 401(k) record keepers consolidate as the health insurers already have, Daly noted.

With SEPs, Simple IRAs, solo 401(k)s, auto IRAs and other plan types, there are now many different flavors of retirement savings vehicles, especially for smaller employers. But that might change with government mandates, said John Davis, principal of retirement products at Edward Jones. There's a need for a simplification of the system and more standardization, especially with disclosure formats, he said.

Ultimately, we must better serve the ignored and offer greater access, both of which are key goals of Congress and the Department of Labor. Broker-dealer retirement professionals are in a critical position to help both wealth managers and RPAs. If we don't do a good job, the government will step in, either directly or through overregulation, which poses a much bigger threat than outsiders like Google, Amazon or Facebook.

Broker-dealers that attended:

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’​ RPA Convergence newsletter.