While the 401(k) industry may be somewhat slow to adapt to new technology, the results of a new survey suggest that ongoing developments are quickly transforming the retirement space.
According to the resulting report by digital recordkeeping platform provider Vestwell, outdated recordkeeping technology has led to high costs, administrative difficulties and rigid plan designs. It also has created barriers to entry for small businesses that do not have the financial or administrative resources to support a quality plan. But that appears to be changing, the firm notes, as large banks and private equity firms, for example, have invested nearly a $1 billion into the industry over the past year alone.
“Every aspect of the industry is changing and technology is at the core of it all. Advisors rely on social media to connect with prospects, employers depend on payroll integrations to keep their plans running smoothly, and participants expect the same experience with their 401(k) plan as they do with their online banking,” the report observes.
To identify the ways in which technology and new products are transforming the industry and affecting plan advisors, Vestwell conducted a survey in the summer of 2021. The firm received responses from over 500 advisors, all of whom manage at least one company-sponsored retirement plan.
It found, among other things, that 85% of advisors are placing a greater emphasis on the technology they use to run their business as a result of the past year. Below is a synopsis of four key trends that Vestwell has outlined in which the push for tech-forward solutions has emerged.
Advisors are using digital solutions more heavily to find leads
While referrals will always be a top source for leads, advisors agree that there are other valuable resources that can be tapped into via technology, namely social media. According to the survey, 45% of advisors are finding social media more valuable now versus previous years.
Vestwell notes that this trend toward digital solutions may have accelerated given the past year with the pandemic prompting a remote-first environment and limiting in-person meetings. “So as these tools continue to permeate the financial services industry, it’s safe to say that if you aren’t on LinkedIn looking for leads, there’s a good chance your competitor is,” the report emphasizes. In fact, when advisors were asked about their most valuable source of leads, referrals was the top response, but the second most common answer was social media, ahead of events, websites and cold calls.
Plan advisors are demanding a digital solution for personalized wealth management
More than ever, clients are expecting a more individualized approach when it comes to their retirement plans. Vestwell notes that when it asked advisors what they believe clients are most interested in incorporating into their plans, the number one response was personalized advice in the form of tools such as managed accounts. This response apparently beat out guaranteed income solutions, matching student loan repayments, ESG funds and cryptocurrencies.
The report notes that 68% of advisors who offer managed accounts said they have seen an uptick in adoption over the past year alone.
New technology can equal increased cybersecurity risk
Employers are feeling increased pressure in this area with the increase in cybercrime, with 401(k) plans being an attractive target for hackers, and with the DOL’s recent cybersecurity guidelines for plan fiduciaries. According to the findings, 73% of advisors agree that their clients care more about cybersecurity following a year of uncertainty.
The DOL has also begun auditing plans to test whether they are following proper cybersecurity protocols. Consequently, this added scrutiny means that advisors are also feeling the pressure to carefully vet and select secure technology providers. According to the survey results, 30% of advisors listed cybersecurity as a top concern for the future of their practice, beating out prospecting and client retention.
Plan sponsors supposedly undervalue tech solutions
According to Vestwell, when advisors were asked which aspects plan sponsors most often wrongfully undervalue when selecting a plan, in second and third place were plan design flexibility (39%) and investment flexibility (37%), both of which are highly dependent on the recordkeeper and other tech providers. Those two features trailed only fiduciary oversight (50%), the top response.
Moreover, the survey found that 93% of advisors agree that working with a tech-forward recordkeeper will make it easier to manage their plans, yet in 2020, only 7% of advisors voted fintech recordkeepers as their provider of choice. “This may suggest that effects of the funding to the space is starting to take hold as advisors start to favor more tech-forward providers instead of traditional ones,” Vestwell suggests.
