We are in the early stages of a powerful trend– a small group of organized and well-funded advisory firms are rapidly scaling and pressing the advantages that they have created. They are offering more services for lower fees and building new revenue streams by taking on retirement participants as wealth clients.
Many of these providers are also cross-selling health insurance, property-and-casualty policies and personal lines. For advisory firms that will have to compete against these evolving giants, this is a Darwin-level moment.
But there are more exciting opportunities for retirement advisory firms today than at any time during the four decades I have spent in this industry. Times of great change also create tremendous opportunities for those who can effectively embrace and adapt to those changes.
Retirement advisory firms are now at an inflection point, one that has faced all other retirement service providers.
Record keepers, for example, initially provided only basic accounting services and have since expanded to become one-stop shops. Today, most record keepers in search of revenue are focusing on rollovers and engaging participants in all aspects of their financial lives.
Similarly, national investment consultants began with a focus on C-suite consulting and evolved to provide outsourced chief investment officer services. Even many broker-dealers are branching out, acquiring affiliated firms and building large, full-service wealth advisory businesses, sitting on top of their technology platforms.
In each of these retirement industry verticals, awareness preceded a critical change, leading to survival. That brings us to retirement advisory firms, many of which are just now understanding the impact of changes to their profession. Commoditization, emerging technology and intense competition from new and growing players have led to fee marginalization. In addition, plan sponsors now care less about C-suite services and are asking, “What can you do to help our participants?”
Retirement advisory firms must learn to engage with participants and monetize relationships with them. This concept is as old as the retirement advisory profession itself. What is different today is the number of retirement plan participants and the size of 401(k) plans. There is more demand by plan sponsors for assistance, and technology can help in the engagement process.
Many large retirement advisory firms, like Captrust, are shifting their business in this direction, primarily through in-plan advice. Backed by sales people and technology infrastructure, they are using their greatest asset — their position and relationships as the most respected C-suite consultant. This has helped create a revenue bridge between retirement consulting and wealth advisory, building a new, more profitable business managing the other household assets.
In time, this shift will result in explosive growth. Firms will change their retirement consulting pricing models — happy to “lose it on the peanuts and make it up on the popcorn.”
This should sound familiar. It is the very strategy that record keepers and national consulting firms have used as they have grown and adapted their business models. This is bad news for the many small, independent regional businesses that are already struggling to compete in an industry full of comprehensive services at lower rates.
There is a silver lining. First, retirement advisory firms have more choices when selecting a partner with scale for the next phase. Aggregator firm types include branded registered investment advisers like Captrust and Sageview. Insurance brokerage firms include HUB, NFP and OneDigital –there are 10 such companies at different stages of building a retirement and wealth business. Some private-equity firms are planning to build integrated national firms through acquisition. There are broker-dealers that are acquiring and building firms on top of their platforms. And other industry players are looking to expand to the advisory side.
Possibly more impactful to retirement advisory firm leaders are the career opportunities revealed when choosing to partner with these aggregator firms.
It is not unusual for leaders at acquired retirement advisory firms to expand or change their roles. They might lead an entire retirement and wealth business, manage a region or national retirement practice or move into business development. Many retirement advisers welcome new and varied challenges in these new opportunities.
It has been said that business success is defined by opportunities — the ones we take and the ones we miss. There is an opportunity right now for retirement-focused advisory practices to accomplish three important things with one decisive move:
• Immediately monetize the great practices they have built at levels they once thought unimaginable.
• Find a partner with scale and a matching culture and thrive with their tremendous competitive advantages.
• Expand into new and exciting career opportunities.
Dick Darian is CEO of Wise Rhino Group.
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