401(k) Plans Become a Pipeline for Wealth Clients

Defined contribution plans are becoming a source of new wealth management clients for recordkeepers, independent registered investment advisers and broker-dealers. A report from Cerulli Associates and Morningstar found that about half of advisors working with these plans need more support identifying prospects and converting them into clients.

Released Oct. 6, the report examined how advisors use employer-sponsored retirement plans to build relationships with participants and offer broader financial advice. The research included a survey of 338 advisors and interviews with 22 wealth management firms, retirement plan providers and individual advisors.

Among advisors who do not rank wealth management growth as a high priority, 43.7% identified lead generation as one of the three most useful resources their firms could provide. A larger share, 53.4%, put help converting prospects into clients among their top three choices.

Advisors also reported limited time and resources for using new technology and insufficient access to participant data. These issues can make it harder to identify retirement savers who may need advice beyond their workplace accounts.

Fidelity, Charles Schwab, Empower and Vanguard have expanded planning and advice services for plan participants. The providers are seeking relationships that may lead to managing assets outside employer-sponsored retirement plans. The report found that some have generated rollover and crossover business, while others are adopting similar strategies.

Independent advisory firms and broker-dealers are pursuing the same opportunity by providing guidance to participants and seeking to serve them after they leave or retire from a workplace plan. People within five to seven years of retirement are often strong prospects because they are preparing for a major financial change and may have more complex planning needs, according to Jason Juhl, a partner and wealth advisor at Carson Wealth in West Des Moines, Iowa.

Juhl recommends that advisors first discuss with employers whether participants can receive individualized guidance in addition to the plan’s institutional services. He described a consultative approach, focused on a participant’s current finances and future goals, as a way to build trust. For many Americans, a 401(k) is their largest financial asset.

Younger participants may need service for years before becoming significant wealth management clients. Advisors interviewed for the report said they should still receive service because their retirement accounts can lead to broader discussions about saving, investing and retirement planning.

Brian Boswell, co-founder and senior wealth advisor at The Retirement Studio in Georgetown, Texas, described a similar path for his firm. It sometimes begins by advising a business owner, then helps establish or manage the company’s 401(k) plan. The firm serves plans with $2 million to $50 million in assets and generates nearly equal revenue from its retirement plan and wealth management businesses.

Advisors cautioned against rejecting participants with smaller account balances. One advisor surveyed by Cerulli said turning away a participant with $37,000 could damage the relationship with the plan sponsor. The advisor instead assigns those accounts to a junior team member.

The Retirement Studio uses a similar arrangement, with a 23-year-old employee serving clients with less than $1 million. Boswell described the model as a way to give smaller participants access to service while helping junior advisors develop communication and financial planning skills.

Retirement providers and wealth firms are also forming partnerships to connect advisors with employers and plan participants. Edward Jones has announced collaborations with 401(k) provider Aboon and Retirement Plan Advisory Group, which provides technology, marketing resources and an advisor community. Ascensus has announced a workplace-to-wealth platform with referral workflows intended to connect retirement savers with advisors.