Broker-dealers say they have a leg up on aggregators

Aggregator firms are infringing more on broker-dealers’ turf when it comes to 401(k) and wealth management clientele, but the additional competition doesn’t seem to rattle brokerage executives.

In fact, in cases where the two sides compete, broker-dealers believe they still have a leg up on retirement-focused aggregator firms, especially in the realm of wealth management — which becomes all the more important as 401(k) advisers look to do more work with retail clients.

“They just don’t understand the wealth management business. They don’t. They try to do it from a participant engagement perspective, but they don’t really have a full stack of services,” said Jon Anderson, head of retirement plan solutions at Cetera Financial Group, at the recent InvestmentNews Retirement Plan Adviser Broker-Dealer Think Tank. “If we’re not the best at wealth management out there, our whole business has some challenges, right? Because that’s basically what our foundation is.”

Retirement-focused aggregators are firms actively gathering defined-contribution assets to their platforms by attracting advisers to join their ranks. Broadly speaking, aggregators gather assets in two ways: 1. an acquisition model or 2. an affiliation model, in which an adviser joins an aggregator’s RIA, broker-dealer or some other platform.

Some have sought to expand their wealth-management footprint, largely to capitalize on better profit margins in that business line as fee compression makes 401(k) economics more challenging. Captrust, for example, the largest of the aggregators, aims to boost its annual wealth management revenue to roughly half of the firm’s total revenue within the next few years, up from roughly 30% historically.

“They’ll do a lot of different things to go after that business that they wouldn’t have talked about two years ago,” said Mark Dence, who manages Capital Group’s sales team interfacing with broker-dealers.

Aggregators, typically made up of 401(k) specialist advisers targeting larger retirement plans, also seem to be working with small plans.

“They’re moving down-market into what our advisers’ core has been. And that’s a challenge,” said Jessica Gieseke, product manager on RBC Wealth Management‘s retirement solutions team. “But it creates a healthy marketplace as well and it shakes things up.”

Some believe broker-dealers have cause for concern.

As aggregators inevitably improve their wealth management capabilities, they’ll threaten participant rollovers to advisers at brokerage firms, said Dick Darian, CEO of consulting firm The Wise Rhino Group.

“I think they better be [scared],” he said of broker-dealers.