There are mere weeks left in 2021—and as we look back—and peer forward—for this week’s reader radar, we asked about the impact—and response to—some key retirement industry trends and portents.
Recordkeeping Consolidation
First—something that’s getting a lot of attention of late—recordkeeper consolidation. We asked readers if they considered that an opportunity—or a threat—for their practice… well, as it turns out, nearly half (47%) saw it as an opportunity, and while just about a quarter (23%) acknowledged that “it depends on who is considering.” That said, just 6% saw it as a threat, a few more (7%) weren’t sure, and the rest (16%) saw it as… neither.
“Disruption allows advisors to demonstrate their value,” explained one reader. “Worse service, more important to have a full service model,” acknowledged another.
“Some consolidations are definitely a positive,” commented one reader, who cautioned that they also had clients on the acquiring side concerned “…about whether there is such a thing as ‘too big’ and whether they will matter anymore if they’re a small plan. So, I view consolidation on a case by case basis.”
I feel like at this point the “let us benchmark your plan because your provider was purchased” line is getting tired. Unless it’s a non-specialist advisor I don’t feel there is an opportunity. Same theory applies, specialist advisors shouldn’t be threatened by consolidation.
Any disruption whether positive or negative just opens up the conversation with prospects and clients.
Recordkeeper consolidations create a LOT of work for us, often for no money. They also, at times, push clients to conduct RFPs, which we can and do bill for. They can also trigger plans that do not have an advisor/consultant to seek. In short, disruption in the marketplace is both good and bad.
“Sucks for pricing”
Or, as another commented, “I deal with 22 different Service Providers, websites, passwords, Emails, Communications, Etc. so some degree of consolidation would be welcomed!! :)”
“Hopefully it creates opportunity but scale matters in a big way in a technological world,” observed another. “The bigger you are, the more you can spend $-wise as it’s a smaller %. Keeping my eye on the growth and how it’s happening... While scale gives the ability to spend to improve, if people overpay, then their purse strings might be tight.”
Somewhat harshly, one commented that, “At this point record-keepers are commoditized and more or less a website/app and an 800#.”
“Plan Sponsors need help conducting due diligence to see if their pricing will be in line with the marketplace and optimum plan design and investments are being utilized.”
Or—as another astutely pointed out, “Try transitioning from one recordkeeper to another without an advisor...”
Financial Wellness
We then asked how/will financial wellness fit with their practice. Here a whopping 84% said they were expecting a bigger focus, and another 3% said they thought there were already at capacity. Roughly 10% “hadn’t really thought about it,” while the rest were in the “not our thing” category. About 1% said they were actually planning to pull back some.
“We are short staffed, more business coming in than we can handle,” noted one reader. “Expecting that 2022 will pretty much be The Year of Financial Wellness.” observed another.
“We’ve had good response from sponsors and participants and I expect that to continue,” said another.
However, another commented: “Financial wellness is so ‘yesterday.’ It’s financial planning as an employee benefit.”
“Financial wellness is kind of a conference buzzword without any real or consistent definition,” said another. “And it often attracts more attention than it deserves, or at least more attention than funding from sponsors. That’s partly based on branding—who can be against wellness, and financial wellness is closely correlated to health wellness, so it makes sense to pursue. But how to pursue it, and whether sponsors are willing to make the investments necessary to attain true financial wellness is a much tougher question. Too many sponsors seem to think educational lip service is all that’s needed, and many advisors are complicit in this misunderstanding, hoping that their willingness to deliver inexpensive educational programs that purport to address financial wellness will win them more business. We play that game less than most, which is perhaps why I don’t see financial wellness as central to our practice.”
“We have been fully offering financial wellness services for several years and the uptake has been minimal. Clients want it but are not willing to pay for it,” observed another.
“Major developments on our end.”
“Already have a robust wellness program, just need to focus more employer awareness and endorsement of utilizing the tools for greater engagement.”
“The largest hurdle we have seen is getting employee engagement. Until the employers start to require it or become more supportive of it will remain difficult to get employee engagement.”
Retirement Income
We next asked readers if, in 2022 they’d be talking about in-plan retirement income options. Nearly half (48%) cautiously noted “possibly—curious to see what the SECURE Act changes may yield (for more on that subject, see Are We Ready for Retirement Income?). Beyond that, there was a mixed message:
18% - Probably—I already am, after all.
17% - Not likely.
11% - Too soon to say.
7% - This is the year!
There was, however, a fair amount of skepticism in the verbatim comments, however:
Don’t understand why this is such a focus when such products can typically be purchased by clients (with many more features and flexibility and at less cost) outside the plan in the retail environment.
Solution in search of a problem
My clients don’t seem overly interested in this quite yet. There need to be more products that are easy to understand and communicate. And, recordkeepers need to confirm if they are ready to account for different solutions. Portability is still an issue in my mind.
Waiting for more viable products.
I don’t like them
Waiting for real guidance
Needs to be made Clear & PORTABLE
Early innings of this one, the game is just getting started.
The main issue with this is that until the income options with in plans equal or exceed outside products it makes it tough to comply with Reg BI to “promote” the in-plan options.
Since we work with 403(b) plans, we’ve been talking about them for decades without much participant interest. Will be interesting to see if the next generation of such products (re annuities inside tdfs, non-annuity options) will be more popular in 403(b) plans and ultimately lead to 401(k) sponsors adoption such features.
Most of our clients want terminated participants out of their plans.
Managed Accounts Versus TDFs
The next area of focus—whether in 2022 they were more likely to advocate for managed accounts or target-date funds. Here the clear favorite was:
47% - Target-date funds
21% - Probably split 50/50
18% - Not sure
14% - Managed accounts
People, especially engineers, want to look up the ticker symbol and load it into their fin tech. Hard or impossible with portfolios.
Depends on the client and the makeup of their employee base
No different than this. Depends too on the provider.
Fees on managed accounts + lack of engagement = negates personalization. TDFs win.
Managed accounts have a role to play but are still—generally—far too expensive, and are a new target for excess fee litigation. I see managed accounts taking off when standard pricing gets to or below 25 bps. And I see that price target coming relatively soon.
Both are needed to provide the investment solution needs of plan participants
Custom TDFs
Managed accounts are nothing more than an opportunity to greatly increase fees
If Managed Accounts move to a more formalized deliverable (aka third party managers similar across platforms OR standardized ability for advisor driven managed portfolios) then perhaps would consider using more often. Target dates are what they are but they’re consistent across providers.
TDFs, and it’s not close. One has revolutionized the industry, the other is about as popular as annuities. Will take further evolution of manager account for them to be firmly on plan sponsors’ radar, imo.
Managed funds are code speak for “higher fees” in my opinion. And, you must be extremely hands on with education or participants won’t understand what they mean, how they integrate with other investments, and how much they cost them in extra fees.
Fees
And for the final focus area, we asked readers if, in 2022, how, if at all, they expected what they charged for their services to change.
68% - Be about the same compared with 2021
17% - Be higher compared with 2021
11% - It’s going to depend on the client
4% - Be lower compared with 2021
Price has gone up everywhere on everything including our labor
Clients who want more services will hopefully be comfortable paying more!
Fees the same, amount higher due to assets
Lower base fee with add-ons for custom services
We right price every opportunity and evaluate / benchmark consistently
We have consistently been increasing fees when moving over Clients from BOR to RIA—3(21) or 3(38). While at the same time saving the Client $$’s
We have gone to flat fee versus bps and also lowered fees on plans w/ higher AUM but lower parts.
Probably be about the same, but the trend is to offer more services (e.g. participant advice, financial wellness, etc.), which means we’ll be paid more...
Other Factors
Finally, we asked readers if they had additional “key factors” that could be a significant factor in their practice for 2022. Sure, regulation and legislation showed up, as did ESG (or more precisely the new proposal), PEPs, and—encouragingly enough, handling business growth and attracting new talent also came up repeatedly. Here’s a sampling:
Increased regulatory scrutiny
Rollovers, IRA and Roth discussions. Retirement Options for Beauty Salons, Barber Shops, Small Restaurants & Similar Businesses in Communities of Color and Underserved Communities. Really a missing Target Base.
Advisor consolidation
Finding good talent to join our growing team.
3(16) Services [and the differences between vendors/service types] and Cash Balance Plans.
Labor shortage
Getting the PTE on IRA rollovers nailed down
Market performance will be more volatile. Rising interest rates will impact market value adjustments for fixed accounts.
PEPs
Changes to law and IRS and DOL activity.
Reg BI and working with retiring participants.
Staffing, competition, overall sales/marketing
Low interest rate environment on cost of annuities and fixed income investment options.
Legislation and inflation issues
Adjusting back to going to in-person
Recruiting more talent for our team
Nonqualified deferred compensation!
Biden Admin
Inflation
Rollovers and Wealth Management
Interest rates and plan funded status.
Regulation
Non-retirement savings accounts
Design needs to retain employees in small businesses
Student loan programs
COVID
More tech/ remote solutions
ESG
Final DOL rule on ESG
Pooled products
State and or Federally mandated Programs and the growth of PEP type programs to help accommodate the growth.
Technology integration with advisor resources and tools
Cybersecurity discussions, ESG
Talent. We have a not-so-great RM who is untouchable at the corporate level. We need real talent who is effective. Not many out there focused solely in retirement.
Growth of new clients.
Increased Compliance & Administrative stuff always bogs us down. Example for 2021: now we have 4 of the 22 providers we deal with (I’m sure all eventually) asking us to set up a special shared drive to get reports, enrollment material, basically anything!! Our Firm grants access for only 90 days—and the process to acquire is a nightmare
Cyber security
Capacity to onboard new clients. Internal growth.
Market movements. I think everyone is sleeping right now lulled there by constantly increasing market valuations... Not calling for doom and gloom but people are moving up the risk spectrum at a rapid pace and it is starting to feel eerily similar to previous experiences.
I think WFH (even if we remain 30-50% of time WFH) allowed us to scale and take on more plans with adding additional staff.
Keeping up with rapid growth
Sales concept strategies
Cultivating In house referrals
The continued trend of improved retirement readiness scores among younger employees due to autoenrollment/autoescalation. More concern about retirement plan asset retention as more Baby Boomers retire...
Finding a “mini-me” to clone and help with plan service.
Large advisory companies getting bigger and more aggressive as competition.
Thanks to everyone who participated in our weekly NAPA Reader Radar poll!
