- Key insight: Major recordkeepers and independent advisors alike are turning 401(k) defined contribution plans into client acquisition engines, competing directly to convert plan participants into long-term wealth management clients.
- What's at stake: Advisors who turn away small-value participant accounts or fail to provide ongoing service risk eroding their relationships with plan sponsors and surrendering lucrative pre-retirement rollover assets.
- Supporting data: 53.4% of advisors who don't consider wealth management growth to be a high priority say helping convert prospects to clients would be one of the three most valuable resources firms could provide.
Defined contribution plans can be a potential source of new wealth management business for advisors, but the opportunity comes with challenges around prospecting, technology and participant data.
About half of advisors working with defined contribution plans need more support identifying prospects and converting retirement plan participants into wealth clients, according to an Oct. 6 report from Cerulli Associates and Morningstar. Among advisors who don't prioritize wealth management growth, 43.7% said identifying leads would be a top-three most valuable resource, while a larger percentage — 53.4% — said helping with actual conversion of those prospects to clients would be a top-three resource.
In addition, advisors also reported not having enough time or other resources to leverage new technology and said they need better access to participant data.
The research examines what Cerulli and Morningstar call the "bridge to wealth" — strategies advisors use to acquire clients through defined contribution plans. It included a survey of 338 advisors and 22 interviews with wealth manager home offices and individual advisors.
Large recordkeepers, such as Fidelity, Schwab, Empower and Vanguard, increasingly offer planning and advice services "to build relationships with participants" and manage assets beyond retirement accounts, according to the report. Some have already translated those relationships into advice business: "A few have been effective in generating rollover and crossover, and others are adopting the strategy," the report said.
Independent RIAs and broker-dealers are also using retirement-plan relationships to pursue wealth management opportunities, engaging with plan participants, and when possible converting them to clients outside the retirement plan, the report said.
Plan participants nearing retirement are often the best candidates to convert to clients because they are actively preparing for the transition and often have more complex financial needs, said Jason Juhl, West Des Moines, Iowa-based partner and wealth advisor at Carson Wealth. In his work with defined contribution plans, people within five to seven years of retirement tend to be the most engaged, he said, though he emphasized the importance of serving younger participants as well.
Working directly with plan participants can be an effective way to build trust and develop prospects, Juhl said. For many Americans, a 401(k) account is their largest asset.
Juhl said advisors should first talk with the employer about offering individualized guidance beyond the institutional management of the retirement plan.
"Nine times out of 10, they're going to agree to that," Juhl said. "They also appreciate that you're making that effort to make sure that their plan participants potentially have someone who can be a little bit more structured and individualized on the guidance that they provide."
Another advisor who works with 401(k) plans is Brian Boswell, co-founder and senior wealth advisor at Georgetown, Texas-based The Retirement Studio, which is affiliated with registered investment advisor Savvy Advisors.
In some cases, The Retirement Studio first works with a business owner as an advisory client and then helps establish or manage that company's 401(k) plan, Boswell said. His co-founder, Brandon Barber, handles the 401(k) channel, including working with employers and sending referrals. The firm's 401(k) practice serves plans ranging from $2 million to $50 million and generates nearly equal revenue from its 401(k) and wealth management businesses.
Mistakes to avoid
Advisors cautioned against approaching participants too much like salespeople or turning away smaller accounts.
"You don't want it to be salesy in nature," Juhl said. "You want it to be more consultative in nature. … If you lead with consulting, trying to help understand an individual's situation, where they are today, and where they're trying to go. That's really what fosters that trust and builds that relationship to be able to convert those plan participants into more individual clients."
Another common mistake, Boswell said, is when advisors sell but don't service.
"What we really built out is a whole process and a team behind the 401(k) advisory services that we offer to help with the servicing, the onboarding and making sure that we're developing those relationships with all of these plan sponsors," Boswell said.
Cerulli's research pointed to another mistake: turning down small-value accounts referred by the plan sponsor. One advisor affiliated with a national or regional broker-dealer surveyed by Cerulli said turning away a participant with $37,000 "would be a bad decision" that might damage the advisor's relationship with the sponsor, so instead, a junior team member handles these participants.
"'If a referral is coming through a retirement plan, I don't have a minimum,'" the advisor told Cerulli. "Fortunately, I have a colleague that is young to the business and can accommodate them."
Boswell said his firm operates similarly, with a 23-year-old team member working on accounts with less than $1 million.
"It's nice to have a place to put those clients, but it's also super nice to be able to give [junior advisors] a lot of activity to train on, to get better at their communication skills, building out financial plans, so that as they continue to grow, they've got that foundation and can start working on the higher net worth clients over time," he said.
Platforms, providers connect advisors to savers
Some wealth firms and retirement providers are also building partnerships aimed at making it easier for advisors to connect with plan administrators as well as business owners who may want to be plan sponsors.
Edward Jones recently announced collaborations with 401(k) provider Aboon and Retirement Plan Advisory Group, which offers technology, marketing resources and a community. The collaborations are meant to help advisors serve business owners.
Meanwhile, Ascensus, which offers various types of retirement plans as well as program administration for 529 education and ABLE savings accounts, recently announced it is launching a "workplace-to-wealth platform" to connect retirement savers and advisors. The platform will include referral workflows.
"We believe every saver deserves an advisor," Dan Morrison, Ascensus' president of retirement, said in a statement.
Introductory bullet points created by AI with editorial review.
