The future, as elite retirement plan advisers see it

The pandemic has accelerated changes for retirement plan advisers, including remote work, the advent of PEPs and the convergence of wealth and retirement in the workplace.

The Retirement Research Center, an affiliate of the Defined Contribution Institutional Investor Association, led by long-time industry researcher Warren Cormier, recently conducted a survey of elite retirement plan advisers, half of whom had more than $300 million in defined-contribution assets under advisement.

Though many are moving to a flat-fee structure, an average of 66% of their fees are still asset-based, with a minimum of $10,000. However, flat fees are expected to grow to cover 31% of clients by 2020, the study found. Retirement planning accounts for 70% of their revenue, followed by wealth management at 20%.

Significantly, 89% of the retirement plan advisers get less than 25% of their retirement revenue from cross-selling wealth management. Meanwhile, 34% get half of their wealth management revenue from cross-selling their retirement clients.

The greatest source of prospects is referrals, at 47%, followed by benefits partners, at 20%.

Just half of the retirement plan advisers surveyed prefer remote meetings with clients, prospects and providers. One-third of the respondents expect 50% to 99% of their staff to work remotely, with just 6% expecting a 100% remote workforce and 14% expecting less than 10% to work from home.

Though the industry expects managed accounts to grow, half of the RPAs said just 10% of plan sponsors offer them, while 11% of respondents indicated that more that 50% of their clients use managed accounts. Seventy percent of RPAs do not charge an extra fee for managed accounts.

Almost half of RPAs that offer financial wellness do not charge for it, with 38% using their own proprietary services, followed by 33% that use their record keeper’s product.

The greatest value of defined-contribution investment-only wholesalers is competitive intelligence, respondents said, followed by tools and marketing support. The most common length of time for a fund to be on a watch list is 12 months.

Much of the study focused on RPAs' views about environmental, social and governance funds, pooled employer plans and remote working. Most RPAs said they think PEPs will start with small employers, and many are taking a wait-and-see approach. Just 12% of clients offer ESG funds, a figure that is expected to grow to 23% in 2022.

In the executive summary of the report, several leaders in the RPA world shared their thoughts.

“I know some people view a PEP as a great opportunity to provide a scaled solution to the smaller companies in the marketplace, the under-100 employees market segment. I think that there’s a pretty big misconception … that there’s significant cost savings versus doing a single employer plan,” said Jim O’Shaughnessy, managing partner at Sheridan Road.

“Tons of investment providers already include ESG screens, but they never marketed their product as that,” said Jason Chepenik, senior vice president at OneDigital Retirement and Wealth. “The industry will get better at it, marketing what already exists, and thus the numbers will change.”

Kathleen Kelly, managing partner at Compass Financial Partners, recently acquired by Marsh & McLennan Agency, said the pandemic has changed work patterns forever.

“It’s going to be very difficult to put the genie back in the bottle in terms of the efficiencies that we have all gained as a result of being able to jump from Zoom, to Zoom, to Zoom,” Kelly said. “I don’t think in-person meetings are going to go away … It’s been very efficient for me to be able to just jump on calls or Zooms with our partners. It’s more challenging if it is a new relationship to establish a trusted relationship over Zoom.”

The Retirement Research Center expects to go to market this summer with its second study. These independent research projects are essential to understanding a dynamic RPA industry that is changing rapidly because of consolidation, legislation and the evolving needs of plan sponsors looking to help all employees to solve financial issues at work.

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.