Convenience stores cost more than the grocery store. Delivery costs more than take-out. That's how the world works, right?
Not any more. Thanks to technology, convenience and higher cost are no longer linked. Financial services are more convenient than ever, and an advisor's primary competitor is no longer down the street.Who can conveniently provide financial planning services at a lower cost? It's 401(k) providers and 401(k) plan advisors. Each can offer what most financial advisors provide. More importantly, they already have a relationship with your prospect. How can financial advisors compete for rollovers?
Knowing what 401(k) plan providers and advisors can and cannot offer is the key.401(k) providers, or Record Keepers, have watched the majority of 401(k) plan participants roll over their accounts once they retire. From a business standpoint, the timing couldn't be worse. As a person retires, his or her need for financial advice increases dramatically.Consider the average, successful financial advisory practice. Many have less than 150 families.
These advisors often have minimum account values of $500k and charge 1%. Providing financial planning for retirees is both profitable and fulfilling. 401(k) providers are helping people "qualify" as our future clients. That's good for advisors, but not so good for the 401(k) providers.Most plan participants are retired for more years than they were active in their last 401(k) plan. How many participants have been in the same 401(k) for 20 years? Not many. How many will live for 20 years after they retire? Depending on their age at retirement, at least half.
As account balances and ages increase, so does the need for financial advice. Record Keepers know this, and the days of passively watching participants take their money somewhere else and pay for advice are ending.401(k) providers understand what matters to participants, and they keep that information accessible. When a plan participant logs into their account, they immediately see performance and cost. Portfolio management inside a 401(k) is almost free for many participants."The race to zero" is happening. Look at the expense ratios in passive Target Date Funds. Many are less than ten basis points, and the trend continues down. Advisors can argue the pros and cons of active vs. passive mutual funds, the value of non-correlated asset classes in portfolio construction, and how all Target Date Funds are not created equal. However, the plan participant constantly sees two data points: cost and performance.
The days of expensive 401(k) plans with poor, unmanaged investment options continue to fade. In 2020, most 401(k) plans offer low-cost Target Date Funds, and that's where deferrals are flowing.RKs and plan advisors understand the key to retaining assets is connecting with the participant years before they retire. Trust has been building for years between the 401(k) provider and their participants, which makes them the frontrunner for personal financial planning after a participant retires.
How do you think participants feel every time they look at their 401(k) balance? People love seeing their money grow. Investing may seem simple to them. Just put your money in a Target Date Fund and leave it alone. If it ain't broke, don't fix it, right?"Establishing an actual relationship with the participant will be the key," according to Brad Arends, CEO of Intellicents. Arends continues, " The typical American gets the vast majority of their financial needs taken care of at their place of employment. Consequently, retirement, health, and wealth are all converging in the employee benefits space, with worksite financial wellness programs being the mortar that binds them all together."
Pre-retirees, within five years of retirement, want education and advice from a human. Years ago, this was rarely available to 401(k) participants. Not anymore. 401(k) providers and 401(k) specialists are now offering wealth management and one-on-one advice. In-person financial advice is no longer a Unique Value Proposition.How can financial advisors compete with 401(k) providers or plan advisors? Consider what the average financial advisor offers today. Now think about what many 401(k) plans offer. Can you justify a 1% AUM fee?
Are you a CFP® who offers basic financial planning in addition to portfolio management? So does the 401(k) provider.We can argue about the value of working with an advisor, and studies can back it up. That may have been a valid reason to roll over a 401(k) in the past. But now 401(k) providers are offering personal advice, often in direct competition with a 401(k) plan advisor. Who will win that battle? Only time will tell.I can tell you who won't win the battle. It's an advisor who never had the opportunity to meet with the pre-retiree. Want to build a practice for retirees? Then figure out how to connect with pre-retirees many years before they retire.
Join us at the Retirement and Longevity Summit. During the session 'Rollover? What Rollover?', panelists Brad Arends, CEO of Intellicents, Rick Kent, CEO of Merit Financial Advisors, Tom Zgliniec, VP of Wealth Planning at LPL discuss how advisors can compete for rollovers.