The retirement plan consulting industry is constantly evolving, and staying up-to-date with the latest trends and challenges is crucial for both experts and plan sponsors. As leading search consultants assisting plan sponsors in the selection and oversight of their retirement plan advisors, several North Pier senior members attended the recent annual retirement plan advisor industry conference in San Diego, the NAPA 401(k) Summit, to investigate what the broad retirement plan provider market was presently focusing on. The Summit provided a unique opportunity for thousands of advisors, vendors, and thought leaders nationwide to come together and share insights on the sector’s most pressing issues and those that lie ahead.
The conference shed light on several emerging trends in retirement plan consulting. Among the key topics of discussion were the SECURE ACT 2.0, the merger of retirement plan advisory services with wealth management practices, and participant managed account services. Read on to learn key observations from the conference, and what plan sponsors should keep an eye on as we move through 2023.
SECURE ACT 2.0
A prevalent topic of discussion during the conference was the proposed update of the SECURE Act 2.0, which aims to address the limitations of its predecessor and promote retirement savings. Notably, participants at the Summit expressed apprehension regarding the potential government intervention in the 401(k) industry, prompting productive dialogue among industry experts regarding the most effective strategies to prepare for forthcoming changes. Discussions centered around the necessary steps to take advantage of and comply with the proposed legislation, as well as the optimal timing for their implementation. However, as elements of the SECURE Act are still under review and being clarified, we urge plan sponsors to monitor updates and keep an open dialogue with their advisors and recordkeepers. As much has been written on this topic in multiple industry forums, North Pier will simply state that if a plan sponsor’s current service providers have not taken the reigns in leading them through the mired regulation, sponsors should seek that assistance from their incumbents, or elsewhere.
The Convergence of Plan Advisory Services and Wealth Management
Another topic that generated a lot of discussion was the recent trend of plan advisors pursuing wealth management relationships in relation to the retirement plans they consult on. North Pier observed a general sentiment that the industry is moving in this direction, as many firms are currently or looking to offer financial consulting services to plan participants. From a business perspective, it makes sense that this additional source of revenue may be attractive to plan advisors. However, from a fiduciary’s perspective, it comes with some challenges and in certain cases, conflicts.
Historically, there was contention in the industry as many believed that offering wealth management services to participants was an inappropriate use of an advisor’s position of leverage and trust. Additionally, some advisors were reluctant to take on certain liabilities, especially when factoring the lack of regulatory clarity on the subject. In fact, early versions of the DOL’s Fiduciary Rule proposed to greatly restrict the ability and manner in which an advisor could offer these services.
However, as evidenced by many advisors and speakers at the Summit, the industry’s thinking (and regulations) on the topic has evolved. Offering these services has proved to be a highly lucrative business, and if the national conference is any indication, a wave of marketing and recommendations of wealth management services to plan participants and the executives of plan sponsors is coming.
Plan sponsors must remember that they’re still in control of their advisory relationships and can dictate what they are and are not comfortable with. If a plan sponsor is comfortable with an advisory firm offering wealth and estate planning services to participants, they should vet these services on top of the services their plan is receiving. North Pier conducts a great deal of education and discovery on this topic with clients to ensure that a plan sponsor’s views are fully expressed and understood by the incumbent advisor or candidates in a search. Whether assisted by a search consultant like North Pier, or tackling this topic alone, proper due diligence and disclosure on newly offered advisor services is crucial.
Managed Accounts: Are They Worth the Investment?
Participant managed accounts were also a major focus of the conference, with many advisors discussing the benefits and potential risks of offering such services to plan participants. The industry is and has been pushing for managed accounts for some time. While there was a general consensus that they can be a useful tool for retirement planning, it seemed that many advisors are overlooking key items of concern about these services that often come with added costs.
North Pier believes that there are a few questions plan sponsors need to ask before adopting any managed account program:
- What benefits would proposed managed accounts provide to their specific pool of participants?
- Will your participants fully utilize the managed account service to receive said benefits (such as logging in to enter critical information, including all of their outside assets)?
- What is the added cost difference and does the net benefit to participants, both individually and at the aggregate, justify this cost?
There’s a chance that using managed accounts will create an automatic investment scheme that has far too many data inputs at higher costs than a typical Target Date Fund.
At the NAPA Summit, North Pier felt that these important challenges and dissenting issues were footnoted in the conversation, oftentimes by practitioners and conference sponsors that stood to financially benefit from their adoption. When pressed by North Pier in Q&A’s, however, industry experts did acknowledge the potential liability involved for plan sponsors, and whether or not participants would reap enough benefits to justify the costs.
Insights From A Game of Family Feud
During the conference’s closing event, a lighthearted, yet spirited parody of Family Feud took place between independent specialty firm representatives and members of major Wall Street firms. This game provided insights and observations around key topics including ESG, plan advisor selection, and financial wellness.
ESG
Interestingly, there was little discussion throughout the conference around ESG, with a majority of attendees feeling that it was not an important topic. During the game, the survey question, “What are the top reasons for not recommending an ESG fund,” was asked, and answers from the audience further highlighted the industry’s reluctance. Top survey answers included:
- Haven’t considered it – 26/100 participants
- Insufficient interest – 20/100 participants
- Unclear regulatory factors – 20/100 participants
Our team found this surprising, given the increasing importance of ESG considerations raised in many of our search and evaluation projects and the growing demand for ESG-metrics in many defined benefit plan solutions.
Plan Advisor Selection
When asked about the top qualities for selecting a plan advisor, the Family Feud parody revealed that the advisory firm itself wasn’t as important to respondents as the services it offered and the professionals offing it. Top survey answers included:
- Provided services – 48/100 participants
- Advisor’s professional credentials – 17/100 participants
- Experience with similar plans – 16/100 participants
Financial Wellness
Financial wellness was also a point of discussion with many advisors. During Family Feud, answers to the survey question on the top features of adding a financial wellness program included:
- Personal finance education – 27/100 participants
- Access to a financial planning professional – 27/100 participants
- Budgeting tools – 20/100 participants
Overall, the 2023 NAPA 401(k) Summit provided valuable insights into the latest trends and challenges facing the retirement plan industry. From the SECURE ACT 2.0 to the blending of the line between advisor services and wealth management, there are many central issues that advisors and plan sponsors need to be aware of. The conference also revealed revenue-motivated initiatives and the mindset of many product and service ‘manufacturers.’ Plans sponsors should take care to ensure that any new products or services that your partners are offering are truly valuable, likely to be utilized, and come at a fair and reasonable cost. If your advisor is a fiduciary and presents a new service, ask if they are serving in that fiduciary role when they offer the service and that they disclose the added costs and sources of revenue. If they are not acting as fiduciaries in that moment, extra prudence should be utilized and independent evaluation is encouraged to ensure the best possible outcomes for plan participants.