Welcome to this week’s edition of 401(k) Real Talk, where Fred Barstein, contributing editor for WealthManagement.com’s RPA channel, reviews all of last week’s industry news and selects the five most important/interesting stories.
Worth reading/listening/noting:
Read the full raw transcript below:
Greetings & a warm welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV – I review all of this week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
FIRST STORY
There’s been a lot of activity and noise about private market investments coming to DC plans but it’s hard to ignore when well heeled and cautious giants in each market make a move. Bloomberg profiles the partnership between $3.3 tr Capital Group, the home of American Funds, and KKR with $686 bn and $315bn in credit alone.
Active managers, especially in the DC market, need to evolve with passive funds and ETFs eroding their market share which Cap Group CEO Mike Gitlin who took over in 2023 recognizes with their ETF launch and new partnership with KKR on 2 TDFs which include public and private assets. Private equity and investment firms also need to evolve beyond ultra high net worth and institutional investors eager to tap the DC market just as mutual funds have done over the past decades.
Other firms like Apollo, Blackstone and State Street have also announced plans but with access to 20 million households and 75% of all wealth advisors, the move by traditionally cautious Cap Group is notable.
The new funds cost 84-89 bps with no incentive fees which is way below what PE firms make signifying the eagerness of even a giant like KKR to access DC plans.
Next story:
Personalization is coming to employee benefits and eventually retirement plans driven by Gen Z or Zoomers demanding what is being called “benefitmaxxing.” These digital natives born between 1997 and 2012 growing up on Tik Tok want flexibility not content with the status quo not just with benefits but also communications.
Workplace retirement plans have been slow to leverage data and personalize but that will have to evolve not just plan design but to provide other financial tools and resources as personalization proliferates all parts of our lives driven by the demands of Zoomers.
Next story:
The International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists listed seven ways that organizations can leverage AI including:
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Translating and simplifying communications adjusted for each user
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Helping workers choose the right benefits for them during open enrollment
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Personalization based on employee profiles
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Streamlining plan administration
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Data analytics
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Leave administration and
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Preventing fraud, waste and abuse
AI is coming – is your firm ready?
Next story:
The folks at RLC are getting more questions from plan sponsors about how to vet their advisor as they wake up to the need to conduct due diligence on RPAs just like they did for investments and record keepers.
Along with leveraging the SEC’s Form ADV, FINRA’s broker check and state regulators, RLC recommends that plan sponsors ask and understand:
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How advisors are paid
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Are the fees reasonable and
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What are the advisor’s experience, qualifications and reputation
And beyond just plan level services, more organizations are asking what tools and services are available to help employees with other financial needs as outcomes and results eclipse providing fees, funds and fiduciary services.
FINALLY
There is no doubt that there will be fewer record keepers in the next three-five years with the current roster of over 40 national firms and 200 regional record keepers unsustainable.
And while it might not be the fault of advisors who place or do not move plans from providers like OneAmerica that exit, it is their problem. Not only will clients blame them, but other advisors will attack those plans on the move.
Read my recent WealthManagement.com/RPA column about how advisors need to prepare themselves and clients for the next wave of record keeper consolidation.
FINISH
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
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Wealthfront prepares for their IPO
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Vanguard and TIAA partner on hybrid TDF
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Advisor M&A set to break records in 2025 AND
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ARA weighs in on “abusive” ERISA litigation
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.