"Guys, try not to suck," TPSU and TRAU's Fred Barstein said by way of advice to his fellow panelists at the opening session of the Viking Cove Institute's Industry Leaders Summit in Phoenix, Ariz. on Friday.
The session, simply titled "Convergence," included high-profile industry personalities Jeff Cullen of SRP and MarshBerry's Rob Madore. It tackled the always popular topic of marrying wealth, benefits, and retirement.
Barstein began by listing several questions about convergence, including:
- What is it?
- Why is it happening now?
- Does it include benefits?
- What does it mean for retirement plan advisors?
- Should you build, buy, or partner when it comes to wealth management?
"It's happening now is due to three reasons: the explosion of small market plans due to state mandates, the convergence of wealth and retirement among participants, and the need for retirement income," he noted.
He cited data from Cerulli Associates that found there are 12,000 RPA specialists, meaning 50% or more of their revenue comes from defined contribution plans. But there are 276,000 wealth advisors, 20 times as many.
"If wealth advisors' awaken' and many of them have business owners as their clients, it's going to change a lot of things," Barstein argued. "The question I pose is, 'What's easier? Is it for a retirement plan advisor to learn wealth, or a wealth advisor to learn how to do retirement plans?'"
Cullen said the the typical RIA is shrinking; and if so, they have to figure out why.
"I think it's because a lot of retirement plan specialists have figured out that if they bring in that wealth side of the business, they can grow faster," he explained. "I think that's part of it. We're stealing business from the wealth-only RIAs, and the light bulb for them is starting to go off."
He also disagreed with Barstein about which is easier: the retirement plan advisor becoming a wealth advisor or the opposite.
"The answer is neither," Cullen added. "Neither should happen. Have a separation of church and state. Our participant experience is done 100% by our wealth team. We do not have retirement plan specialists running around doing education meetings anymore. That was the old model."
He emphasized personalization's importance (and popularity) in the participant experience.
"You don't mind when Netflix recommends the next TV show for you to watch," Cullen said. "You like that because it knows you, right? You don't mind that Amazon says, 'Hey, you know what, Bob? You're out of dog food. You might want to order more. It knows you well in that same way, and the reason it knows you is because of the amount of data it has on you. The second you outsource it, you lose that."
Madore referenced an earlier Barstein comment that CAPTRUST, a major industry aggregator, is acquiring more wealth firms than retirement firms.
"I'd say that's probably more due to supply than anything," Madore said. "The other thing to consider is when we look at businesses now, those that are doing retirement as a mainstay and are specialists, if they're going above $5 million in top-line revenue, about half of that is typically coming from wealth management. So once upon a time, a firm solely focused on retirement consulting could create those margins, grow the way they wanted, and create that scale for their business."
Yet he recently found that if they want to succeed, grow, and remain independent, they need to "pair these things up because they feed each other. And long term, you'll see, per Jeff, per Fred, the split of business is going to skew more towards wealth management, whether that's because fees drop or just because the firms that succeed are really successful in this area."
