401(k) Real Talk Transcript for January 31, 2024

RPA 401(k) Real Talk Transcript for January 31, 2024 Transcript of Episode 91 of 401(k) Real Talk.

Fred Barstein | Jan 31, 2024

Greetings and welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA Edge and CEO at TRAU, TPSU & 401kTV - I review all of last week’s stories and select the 5 most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real! 

 

The move towards the adoption of in-plan retirement income, which has been slow and clumsy, just took a major step forward with the recent announcement that Fidelity will be partnering with 4 insurers to make a guaranteed income solution available to their 401k, 403b and 457 clients. The 4 insurers include Prudential, Metlife, PacLife and Western & Southern.

As more plans, mostly in the larger markets, become willing to retaining assets of terminated employees very few of which have access to a financial advisor, the need for in-plan solutions is real but has faced many obstacles the biggest of which is record keeper adoption and transferability. But when the leader makes a move, others have to take notice if not follow.

 

Reports by 2 major groups point to the growing importance of the convergence of wealth & retirement at the workplace. MarshMac’s report highlighted the growing desire of clients to have their wealth advisor integrate wealth and retirement planning while also noting that the workplace is a great way for these advisors to find new wealth clients. Though hiring retirement advisors is one strategy, MarshMac’s head of retirement, Craig Reid, noted that it’s easier to attract wealth advisors to a retirement practice which might have hundreds of thousands of participants than it is to attract a retirement advisor to a wealth practice.

E&Y’s study noted that advisors will need to increase their pool of clients with retirement plans as one strategy while it can also help with client retention. To be successful in the DC market, wealth advisors will need to better utilize technology as well as build their brand which really means increasing their circle of relationships.

 

After 425 comment letters and 20,000 petitions, Tim Hauser stated that the DOL will make changes to their fiduciary rule which has come under fire by critics as being too broad and just a rehash of the 2016 rule which was vacated by the courts. Stay tuned to see if that really happens and to what extent.

Meanwhile Cerulli reports that the DOL rule could limit the $845 bn that roll out of DC plans because advisors will need to act as fiduciaries and defend that the move is in the best interest of clients. All of which could further accelerate the shift to in plan retirement income.

 

As DC plans become more high-profile, they have also come under fire most recently by 2 academic groups. Boston College’s Alicia Munnell advocates for the elimination of the tax break for DC plans which she claims cost $185bn/yr or 1.3% of GDP and use that money instead to fund Social Security due to run out in 2034. Meanwhile, the New School’s Teresa Ghilarducci continues to advocate for federally managed guaranteed accounts just as Sean Parker of Napster fame is funding an initiative for a similar solution in congress.

So who’s right?

No doubt that SS is the best deal around especially for people able to wait to 70 to collect, but with almost $10 trillion in DC assets and even more in IRAs, most of which came from DC plans, the results are compelling for tax-deferred, payroll deducted, participant directed retirement plans. State plans, tax credits and PEPs seem to be addressing the coverage issue.

At the same time, there are major issues as DC plans are retrofitted on the fly to replace DB plans and help workers without access to an advisor with slow adoption of retirement income as well as limited technology and access to data. We all have a vested interest in the current system but if we don’t improve it, sometimes with short-term pain, outside forces will.

 

The acquisition of Putnam by Franklin Templeton was certainly not driven by DC assets which will account for less than 7% of their total AUM, but it could be a major harbinger for the DC industry and DCIO managers. While the new firm will still not be a leading TDF provider, indexer or RK, which currently define DCIO success, they can leverage the convergence of wealth and retirement through their 13 external wholesalers, 6 of whom will target wealth advisors through their 100 retail wholesalers.

They can also enable the bridge to wealth helping RPAs develop their wealth practice and wealth advisors leverage DC plans.

Read my recent column on wealthmanagement.com about how Franklin is well positioned to ride the convergence wave and could significantly change the DCIO market opening opportunities for others while enabling advisors.

 

So those were the most important stories from the past week. I listed a few other stories I thought were worth reading covering:

• Betterment to offer student loan option
• Annuity sales post another record year
• Cerulli reports how the fiduciary rule could hinder rollovers
• Ghilarducci touts federally managed guaranteed solution over DC plans
• How advisors should leverage state mandates

Please let me know if I missed anything or if you have any comments. Otherwise, I look forward to speaking with you next week on 401(k) Real Talk.

 

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