Adaptability is critical to maintaining a competitive edge in the wealth advisory realm. Recent developments have spurred wealth advisors toward an unexpected frontier – the world of defined contribution (DC) plans like 401(k)s. For years, these plans were considered too complex and fraught with fiduciary liabilities for financial advisors. However, times are changing, and wealth advisors are now encouraged to embrace the DC industry. In this blog, we'll delve into the insights offered by Fred Barstein in his thought-provoking article and explore how Future Capital can assist wealth advisors in navigating this new territory. †
Fred Barstein's article highlights the significant transformation occurring in the DC industry. It explains why experienced financial advisors, who once advised against dealing with DC plans due to their complexity and associated fiduciary risks, are encouraged to "activate them."
The article identifies several key factors driving this shift. The explosion of DC plans, anticipated to accelerate further, can be attributed to various factors. Government mandates, tax incentives introduced under SECURE 2.0, and the fierce talent competition have led employers to enhance their benefits, with a significant focus on retirement plans. Pooled Employer Plans (PEPs) facilitate this process, making it easier for employers to offer retirement benefits. As the number of DC plans continues to surge, it's clear that the existing 13,000 DC specialists among the 288,000 active financial advisors need help to handle the growing demand.
Barstein's insights shed light on why many wealth advisors initially hesitated to enter the DC plan arena. The margins in this area are often thin, the fiduciary responsibilities are extensive, and the complex ERISA legislation can be intimidating. A 1982 court case deemed fiduciary liability under ERISA as the highest liability known to law. Not a very enticing prospect, right?
However, the article rightly points out that it often takes just one high-net-worth client to establish a DC plan or seek assistance with an existing one to catch a wealth advisor's attention. This is particularly important for wealth advisors who face the challenge of acquiring new clients while serving mainly business managers or owners. Many advisors realize that DC plans can be a valuable source of prospects. Surprisingly, only 3% of DC participants have a financial advisor, indicating a largely untapped market. High Earners Not Rich Yet (HENRYs) and the next 10% represent significant opportunities among these participants. After all, only half of the wealth in the US is currently advised. †
As the demand for DC plans grows, so does the trend of outsourcing much of the work and liability. Home offices, third-party providers, and PEPs are becoming increasingly involved in this space. The changing regulatory landscape, with fiduciary rules and restrictions, has made it even more challenging for dabblers. Wirehouses and independent broker-dealers have imposed requirements for specialists, especially for more extensive plans, and have sought to streamline the DC plan process with select providers. This shift has created fewer specialists, leaving many independent advisors to navigate DC plans independently.
It's essential to mention how Future Capital can assist wealth advisors in this transition. Our technology platform is designed to streamline the entire retirement planning spectrum, including DC plans. We offer comprehensive tools for financial assessments, retirement analysis, investment management, and ongoing monitoring, equipping you with the resources you need to provide your clients with retirement asset management services.
Our platform helps assess and mitigate risks associated with retirement investments, providing essential support during market fluctuations. Moreover, we facilitate ongoing monitoring and adjustments, recognizing the dynamic nature of retirement planning. With Future Capital as your strategic partner, you can seamlessly incorporate retirement asset management into your practice, enhancing your clients' financial well-being and positioning yourself for success.
Fred Barstein's article highlights the changing landscape of DC plans and the growing opportunity for wealth advisors. Opportunities for advisors who can leverage relationships, gain the proper support from their home offices, and access the necessary tools and third-party fiduciaries are here. As the defined contribution revolution unfolds, Future Capital is here to support wealth advisors every step of the way. Are you ready to seize this opportunity?
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† 401(k) Industry Sends Urgent Call to Wealth Advisors
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