The defined contribution (DC) retirement plan arena is undergoing a profound transformation, positioning broker/dealers (B/Ds) at the forefront of an evolving industry landscape, where they must navigate significant changes and opportunities. Insights from a recent roundtable discussion among 23 senior executives in New York City highlight the dual forces of convergence between wealth management and DC plans, alongside an impending wave of new accounts driven by legislative and market shifts. This convergence offers a tempting opportunity for B/Ds to expand their client base through workplace rollovers, yet it also introduces complex challenges, including competitive tensions and resource constraints. As economic pressures mount for record keepers and B/Ds alike, the workplace has emerged as a critical battleground for growth. The stakes are high, with the industry bracing for an unprecedented influx of plans that could redefine service delivery and advisor roles in the coming years.
Unpacking the Convergence Trend
Balancing Collaboration and Competition
The blending of wealth management services with DC retirement plans marks a significant shift for B/Ds, presenting a strategic avenue to acquire new clients through workplace transitions such as retirements or job terminations. However, this convergence is not without friction, as record keepers, grappling with shrinking margins, also target the same participant pool to boost their revenues. The resulting dynamic, often described as “coopetition,” encapsulates a delicate balance of collaboration and rivalry. A key sticking point lies in data sharing, with some record keepers hesitant to provide access to participant information, viewing it as a competitive advantage. B/Ds are exploring practical solutions like revenue-sharing agreements to mitigate these tensions and encourage a more cooperative environment. Without such compromises, the risk of an “us versus them” mentality could undermine the mutual benefits that convergence promises, stalling progress in tapping into this lucrative market segment.
Strategizing for Mutual Growth
Beyond the immediate conflicts over data, B/Ds are recognizing that convergence demands a broader rethinking of partnerships with record keepers to ensure long-term success. One proposed approach involves tiered access to data based on asset levels, allowing both parties to benefit from shared resources while protecting proprietary interests. This strategy aims to align incentives, ensuring that B/Ds can leverage workplace opportunities without alienating key collaborators. Additionally, some industry leaders advocate for joint initiatives that focus on participant outcomes, such as enhanced financial wellness programs, which could serve as a unifying goal. The challenge lies in overcoming ingrained competitive instincts to prioritize these collaborative efforts. If successful, such measures could transform the convergence trend from a potential flashpoint into a sustainable growth engine, redefining how B/Ds and record keepers interact in the evolving DC landscape.
Preparing for the Surge of New Plans
Tackling Advisor Capacity Constraints
An estimated 200,000 new DC plans are projected to emerge over the next five years, driven by legislative changes and conversions of state-mandated plans into DC structures, creating a daunting challenge for B/Ds. This surge threatens to overwhelm existing advisor capacity, particularly as registered plan advisors (RPAs) tend to prioritize larger, asset-heavy plans that yield higher returns. Smaller, newer accounts, which form the bulk of this incoming wave, require a different approach, often with lower profitability and higher servicing demands. B/Ds are looking to wealth advisors to fill this gap, seeing them as a vital resource to manage the volume. However, the transition is far from seamless, as many of these advisors are unfamiliar with the intricacies of DC plans and hesitant to pivot their focus. Addressing this capacity shortfall will require strategic resource allocation and a reimagining of advisor roles to ensure that the industry can handle the scale of new accounts without sacrificing service quality.
Bridging the Expertise Gap
Equipping wealth advisors to tackle the influx of DC plans involves overcoming significant hurdles in expertise and engagement, a task that B/Ds must prioritize to maintain competitiveness. Many wealth advisors lack the technical knowledge required to navigate the complexities of DC plans, from regulatory compliance to plan design nuances. Moreover, there is a cultural resistance to soliciting DC business from existing wealth clients, driven by concerns over disrupting established relationships. B/Ds are beginning to roll out targeted training programs to build advisor confidence and competence in this area, focusing on practical skills and industry-specific insights. Support structures, such as dedicated DC plan specialists within firms, are also being considered to provide ongoing guidance. This investment in education is critical to transforming wealth advisors into effective contributors, ensuring that the industry can absorb the coming wave of new plans without straining existing resources or compromising client outcomes.
Embracing Technological Innovation
Overcoming Legacy System Limitations
The sheer volume of new DC plans on the horizon exposes the glaring inadequacies of legacy recordkeeping platforms, which were designed for incremental growth rather than transformative surges. These outdated systems struggle to manage the complexity and scale of smaller accounts, often resulting in inefficiencies that drive up costs and hinder service delivery. B/Ds are increasingly aware that maintaining the status quo is no longer viable, as the expected 200,000 new plans will demand streamlined processes to remain profitable. Fintech solutions offer a promising path forward, with tools that enhance automation and scalability to handle large volumes of accounts with minimal manual intervention. Yet, adoption of these technologies remains slow across the industry, reflecting a reluctance to depart from familiar frameworks. Breaking through this inertia is essential for B/Ds to prepare for the future, ensuring that systems can keep pace with the rapid changes reshaping the DC plan environment.
Accelerating Fintech Adoption
While the need for disruptive innovation is clear, B/Ds face internal and external barriers to integrating fintech solutions at the speed required to address the looming DC plan surge. Resistance often stems from concerns over cost, compatibility with existing infrastructure, and the perceived risks of untested technologies. However, delaying adoption could prove more costly in the long run, as inefficiencies compound under the weight of new accounts. Industry leaders are advocating for pilot programs to test fintech tools in controlled settings, allowing firms to evaluate effectiveness without overcommitting resources. Partnerships with technology providers are also gaining traction as a means to share expertise and reduce implementation burdens. By prioritizing these steps, B/Ds can move beyond incremental improvements to embrace transformative changes, positioning themselves to manage the influx of plans efficiently. This shift toward innovation is not just a response to current challenges but a proactive strategy to future-proof operations in a dynamic market.
Building Advisor Readiness
Dismantling Cultural Barriers
Engaging wealth advisors in the DC plan space is a critical component of B/Ds’ strategy to handle the upcoming surge, yet cultural barriers pose a significant obstacle to this transition. Many advisors view DC plans as outside their core competency, fearing that venturing into this area could jeopardize long-standing client relationships or expose gaps in their expertise. This hesitation is compounded by a lack of incentives to take on smaller, less lucrative accounts that dominate the new plan landscape. B/Ds must address these concerns by fostering a cultural shift within their firms, reframing DC plans as an integral part of wealth management rather than a separate niche. Initiatives like mentorship programs, where experienced RPAs guide wealth advisors, can help normalize this integration. Creating a supportive environment where advisors feel empowered to expand their skill set is essential for building the capacity needed to meet the demands of a rapidly growing market.
Implementing Robust Training Solutions
Beyond cultural challenges, the practical need for education looms large in preparing wealth advisors to service DC plans effectively amidst the anticipated account boom. Comprehensive training programs are necessary to equip advisors with the knowledge to handle plan-specific issues, from understanding fiduciary responsibilities to navigating participant needs during rollovers. B/Ds are exploring a mix of in-house workshops and external certifications to deliver this education, ensuring advisors gain both theoretical insights and hands-on experience. Additionally, access to specialized tools and resources, such as digital platforms for plan management, can reinforce learning by simplifying complex processes. The goal is to build a workforce of versatile advisors who can confidently address the unique requirements of DC plans, thereby unlocking the workplace as a source of client growth. Investing in these educational efforts reflects a long-term commitment to advisor readiness, crucial for sustaining industry growth in the face of unprecedented change.
Reflecting on Industry Adaptations
Looking back, the journey of B/Ds navigating the convergence of wealth management and DC plans revealed a landscape marked by both opportunity and tension. The collaborative yet competitive dynamic with record keepers demanded creative solutions like revenue-sharing models to ease friction over data access. Meanwhile, the overwhelming surge of new plans tested the limits of advisor capacity, prompting a necessary pivot toward engaging wealth advisors through targeted training. Technological innovation emerged as a linchpin, with fintech adoption slowly gaining ground to address the shortcomings of legacy systems. Moving forward, B/Ds need to accelerate these efforts, focusing on scalable solutions and robust education to prepare for ongoing growth. Strengthening partnerships and embracing transformative tools stand out as actionable steps to ensure resilience. These adaptations, forged in response to immediate pressures, lay a foundation for a more agile and collaborative industry, poised to tackle future challenges with greater confidence.
