To 401(k) or not to 401(k)?

Posted by Mark Piquette on March 25, 2014

With its stable asset growth and a growing demand for investment advice among plan sponsors and participants, the $2.8 trillion 401(k) plan market represents a tremendous opportunity for RIAs. But with opportunity comes challenges for advisors wanting to enter the 401(k) market, including a long sales process, new regulatory issues, fee pressure and frequent meetings.

In Understanding the 401(K) Marketplace, a recent Trust Company of America Genius Session, TCA’s Ken Tucker sorts the wheat from the chaff when it comes to the retirement plan business – laying out different approaches to the business, detailing how managing 401(k)s can benefit an RIA practice and identifying some of the pitfalls to avoid.

The industry has evolved much in the years since Ted Benna launched the first 401(k) in 1980. The 401(k) plan, designed as a supplemental retirement vehicle to Social Security and pension plans, is now expected to shoulder most of the retirement load. And that leaves plan sponsors and participants with greater need for quality advice and service.

In the Genius Session, Tucker presented two approaches for advisors to consider when entering the 401(k) business. The “Bundled Approach” refers to a single source provider of all aspects of a 401(k) plan, including third-party administration, record keeping, custody and trade processing. This “all-under-one-roof” service provides a single point of accountability, but does not allow for a local third-party administrator (TPA) – something some plan sponsors require.

The unbundled approach allows assistance from a local TPA and provides additional plan sponsor flexibility. But Tucker noted that this approach can require that plan sponsors and RIAs manage relationships among multiple parties.

In a poll of RIAs who attended the Genius Session, 66% said a difficult selling process was the biggest barrier to getting into the 401(k) space. While acknowledging that 401(k) sales can be complicated, Tucker noted that TCA’s Dedicated Relationship Model can provide RIAs with support to grow their 401(k) practice.

TCA can also provide either a bundled or unbundled option through TCA’s  RIA 401(k) capabilities, which allows RIAs to combine managed-account capabilities with a high-quality investment selection. Merging models-based portfolio technology with its retirement plan platform, TCA is the only custodian in the 401(k) marketplace that allows RIAs to develop completely customized models for retirement plans and their participants. Advisors can use a variety of strategies and investment options, such as ETFs and equities, to offer participating employees flexibility and diversity in assets and management.

A tremendous opportunity exists for discretionary money managers to satisfy the need for personalized investment advice in the 401(k) market. And TCA can help facilitate an RIA’s ability to take their investment skills to the qualified plan market, increase the efficiency of servicing plan, and provide tools to develop a turnkey 401(k) offering that will be a unique, branded solution. 

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