To survive in the COVID era, RPAs must adapt

Something I felt right after the reality of the pandemic hit in mid-March was a sense of unfairness. The health and even survival of my business were severely threatened -- and mostly out of my control -- as most of our revenue comes from in-person training and networking programs.

After feeling sorry for myself for a short time, I started planning. We immediately started weekly virtual town halls and then moved to virtual training programs, which have far exceeded our expectations. In the future, we plan to conduct hybrid in-person and online programs, which will boost attendance and revenue.

Though retirement plan advisers, record keepers and defined-contribution investment-only shops were affected by the COVID-19 crisis, the stock market rebounded, meaning that asset-based fees were not dramatically reduced. Some costs of doing business even shrunk.

The pandemic has forced RPAs to find new ways to acquire clients, manage workforces and serve clients. But it also highlights a much more fundamental need for RPAs to rethink their entire business model.

The convergence of wealth and retirement is only going to gain momentum, followed by the integration of benefits. The financial services, insurance and banking industries realize the opportunity to reach almost 90 million people at work who cannot afford traditional advisers. The commoditization of Triple F services (fees, funds and fiduciary) will increase, as will the move from asset-based to flat-fee-plus activity charges.

Plan sponsors are waking up, frustrated by opaque, complicated revenue-sharing schemes. They also have problems with advisers who don’t specialize in DC plans, at best providing limited service and at worst never showing up.

What does the RPA practice of the future look like? Put another way, how can RPAs migrate their practice into a business?

There’s a firm in Overland Park, Kansas, a hotbed of RPAs, that recognized the trends early and is riding a wave of change that has accelerated by the COVID-19 crisis.

That RPA, Two West Advisors, oversees $2 billion in DC assets. The firm started in part through a relationship with Dimensional Fund Advisors and partnered with wealth managers who had just a few DC plan clients.

Realizing the power of pooled plans, the firm formed a relationship with the National Association of Intercollegiate Athletics, mostly Division 2 and 3 private colleges, to negotiate better fees and services for TIAA clients, acting as a 3(38) and partnering with a 3(16) provider without technically creating a multiple employer plan.

They understood the potential demand for financial wellness and the inability of most advisers, even RPAs, to deliver that. The company worked with Questis to create GoalPath Solutions, a technology-based financial wellness service offering certified financial planner coaches that most individual RPA practices could not afford or create.

Finally, the firm bought an expensive enterprise FinLife license from Goldman Sachs that's designed for wealthy investors, reselling the service at a reduced price to other advisers.

Eventually, Two West’s partners, Marko Ungashick, Ryan Rink and Vern Cushenbery, realized that they had a mini-aggregator attracting not just wealth managers seeking to outsource ERISA services, but also experienced RPAs who don’t want to sell.

Two West has gone further than most RPAs might, but it followed the opportunities that the market offered in its own way. That included using a pooled plan scheme to help get clients better pricing and service and using technology and scale to its benefit.

There are other ways for RPAs to grow, like partnering with benefits brokers. That is what Hub and OneDigital are betting on through their respective acquisitions of GRP and Resources. But the low-hanging fruit that Two West plucked is an example that most RPAs can follow without having to sell or join a giant aggregator.

RPAs stuck in a cold-calling, Triple F model have poor prospects for growth. And as a result of the pandemic, they could soon face extinction.

Sometimes it takes more energy to resist change than make the effort to adapt. It may not be fair but it seems to be reality.

[More: The danger of focusing on retirement plan participant outcomes]

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.