As the 401(k) industry nears its 42nd birthday, the biggest financial service firms offering defined-contribution record-keeping are increasingly becoming vertically integrated with proprietary, native functionality. Offerings range from simple banking accounts and IRAs to supplemental executive retirement plans. Firms stand ready to satisfy all the workplace and retail wealth management needs of even the most sophisticated clients.
It’s not hard to understand or appreciate, given the almost constant flow of potential new wealth management clients through the 401(k) system, why many large, vertically integrated financial services firms are interested in maintaining these platforms. Despite the heightened litigation risk, compressed margins and escalating maintenance costs, many large firms continue to invest to stay relevant in the workplace ecosystem.
Given the ubiquity of workplace savings and the fact that most young adults start their retirement savings journeys on these legacy platforms, does it make sense for advisers to enter this space and compete? Sending those clients off platform and hoping to get them back when work separation occurs seems illogical.
To that end, RPAs should start considering an embedded fintech 401(k) solution, similar to what you see in the banking, payments, lending and insurance industries. Household examples of that include Afterpay for lending and Shopify for ecommerce, among others.
It’s clear there is no shortage of new embedded fintech solutions in the wealth management space. Given the exorbitant cost it would take to develop their own record-keeping platform, RPAs will need an affordable and efficient full-service option if they are to jump in and directly compete with these legacy institutions.
Vestwell is one of the first designed specifically to support RPAs as they move to control their own DC record-keeping platforms.
RPAs should have the resources they need to create their own vertically integrated, holistic wealth management offerings wrapped in custom branding with a 401(k) administrative functionality. Through a white-labeled, fully customizable record-keeping solution, advisers can move to establish their own brand, retain clients and expand their businesses.
Time-saving record-keeping services afford RPAs the additional opportunity to easily scale their business in an area of the market they may have avoided in the past – the underrepresented small and medium-sized plan segment. The demand is growing quickly in this market for the institutional-quality guidance. There is an immense opportunity for RPAs to grow and diversify their client segments.
As technology evolves in the retirement space, RPAs can reevaluate their business strategy and determine if they would benefit from controlling their own record-keeping platforms. Not building or owning, but simply exerting control to offer their clients the best possible experience.
Aaron Schumm is founder and CEO of Vestwell.
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