Recordkeepers and DC plan advisors seize new opportunities to capture participant rollovers
September 19, 2022, BOSTON—As larger, influential defined contribution (DC) advisory firms and recordkeepers continue to prioritize their wealth management initiatives, Cerulli anticipates “coopetition” between recordkeepers and plan advisors—in which the two parties work together to serve the plan but simultaneously compete for participant rollovers—will increase in the coming years, according to the latest Cerulli Edge—U.S. Asset and Wealth Management Edition.
Cerulli estimates more than $440 billion in DC assets were rolled into individual retirement accounts (IRAs) with the help of an advisor in 2021, illustrating the addressable market for sourcing wealth management business from the DC market. Of advisor-intermediated rollover assets, 86% take place through an existing advisor relationship. “For wealth managers looking to capture rollovers from DC plans, this data underscores the importance of establishing and nurturing relationships with participants earlier in their careers, years before potential rollover events,” says Shawn O’Brien, associate director.
Given the attractive economics of wealth management, DC recordkeepers and retirement aggregator firms are seizing opportunities at the intersection of DC and wealth management by creating synergies across these two business lines, sourcing wealth management relationships from their DC plan clients. The ancillary revenue generated from converting participants to wealth management relationships may, in turn, allow recordkeepers and plan advisors to charge more competitive plan-level fees to expand the breadth of their DC business.
Opportunities For Aggregator Firms & Recordkeepers
Some top retirement aggregator firms are seeking to expand their wealth management operations and capabilities by acquiring smaller, regional wealth management firms. “Aggregators are widely viewed as the key plan-level decision makers in the DC mid-market,” remarks O’Brien. “Through acquisition and organic growth, they have captured a substantial share of DC-intermediated assets,” he adds. According to the research, the top-10 retirement aggregator firms collectively advise on more than $1 trillion in DC assets. “This poses a potential threat to recordkeepers that offer wealth management services,” he adds.
Recordkeepers will need to play defense, striking a balance between satisfying plan advisors to retain DC mandates while maintaining relationships with aggregators, because of the influence they have in helping plan sponsors monitor and select their recordkeeper(s). “Initiating direct, constructive conversations with plan advisors to address their respective approaches to capturing rollovers will help recordkeepers find a middle ground,” states O’Brien. The research also suggests that recordkeepers consider employing a tiered wealth management service model (based on investor household investable assets) to serve mass-affluent and middle-market rollover clients who fall a tick below the plan advisor’s purview. “There is an opportunity for recordkeepers to leverage digital solutions that offer scale to serve less affluent participants or those unwilling to pay the higher fees associated with a traditional wealth management relationship,” he concludes.
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