While discussing one of his new ideas, a fellow entrepreneur asked me recently, “What is the biggest problem in the retirement industry?” I answered, “Every part of the industry has its own unique problems.” Which led me to think about the real problem for everyone.
DCIOs. Let’s start with DCIOs, which are at the end of the food chain. It seems like the biggest problem for many of them (active managers without a viable target-date fund) is the diminishing pool of available assets. But the real problem for all DCIOs is lack of power — they don’t have direct access to plan sponsors, participants or the data, and can only “influence” a sale. They complain bitterly that RKs, advisors and BDs see them as an open checkbook but, without financial support, how much power would they have?
Record Keepers. For RKs, it seems like diminishing margins in a commoditized market with falling prices causing consolidation is their real problem, but in fact, access to participants to cross-sell other services might be even a bigger issue. They own the data but the advisors and BDs think they own the relationship with participants.
Broker Dealers. BDs see unlimited liability and diminishing returns in the DC market. Many have not stepped up to support retirement plan advisors in their network. But with the proposed DOL fiduciary regs, they will have to make some hard choices. Taking on fiduciary liability for IRAs and understanding their relationships with DC plans, where most IRAs emanate, will be a very hard row for many to hoe.
Advisors. Experienced DC plan advisors see improving outcomes or financial wellness as their biggest issue to show value beyond the Triple F’s (fees, funds and fiduciary), but their real issue is practice management. To run a successful retirement practice today, you need to manage people, capital and technology — but the vast majority of advisors have little or no business training or acumen.
Plan Sponsors. Many in the industry think that the biggest issue for plan sponsors is improving outcomes. But for most plans, especially in the advisor sold market, their issues come down to one simple question: “Would I pass a DOL audit?”
Participants. It seems like most participants are not saving enough for retirement, but their biggest issue could be longevity. Will they have enough money to last in retirement, especially for the later stages when physical and mental health are likely to be failing?
So what’s the real issue for the retirement industry? The interests of the various constituents are not aligned — and sometimes they are in direct conflict. The industry is under a microscope as it enters early adulthood, looking worse than it really is while giving critics or “haters” plenty of opportunities to take potshots.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
