During the first internet boom in the late 1990s and early 2000s, the buzz was that technology providers like Amazon would replace all traditional bricks and mortar as well as disrupt many industries. Three technology-oriented defined contribution registrars, Emplanet, ExpertPlan and GoldK, emerged, disparaging traditional models and their inefficiencies only to fizzle out or severely underperform.
A similar result recently occurred with so-called “insuretechs,” with seven companies raising $1.2 billion to sell life insurance directly through slick websites, data analytics, and Internet marketing. Five of the seven now work with life insurance agents, and Prudential’s $2.3 billion purchase of Assurance IQ has largely been written off, proving that life insurance is sold not bought.
Which sets up an interesting debate for the DC system, which is experiencing growing pains to serve the potential onslaught of small/start-up plans due to state mandates and SECURE 2.0, as well as 97% of DC participants without a traditional financial advisor such as wealth, retirement and benefits go together in the workplace. Who can profitably service the potentially millions of new plans with RPAs busy selling and serving larger plans and wealth advisors not interested in the DC market? And who will serve the tens of millions of participants without enough assets to make traditional financial advice viable?
Which naturally might lead some to say fintechs, which raised $210 billion in 2021 alone, will step in, something the life insurance market realized wasn’t viable because policies are sold, not bought, just like DC plans. Embedding financial apps into other services is a growing trend, but not yet proven.
Is the saying “sold not bought” still true with some version of state plans either in effect or pending in all but four states and some municipalities?
It is important to distinguish between selling a plan to an employer and servicing participants. Empower, with its $1 billion purchase of Personal Capital, is betting that underserved participants will use its robo-advisor, which is different from Prudential and hopes that Assurance IQ can bring in new clients. Empower already has the relationships, data and access to the participants.
The startup market for small plans is dominated by payroll companies — even fintechs like Guideline and Human Interest rely on them for sales. Most do not have an advisor associated with them.
RPAs that are part of benefits firms such as Hub, OneDigital and Marsh McLennan may have to service plans referred by benefit brokers who tend to work with smaller employers, likely through PEPs or GOPs, while some broker/dealers such as UBS is starting to crack the code on getting its wealth advisers to at least refer clients with a 401(k) plan even if they don’t want to work with the plan directly.
So while payrolls working with fintechs that will act as 3(21) or 3(38) advisors can replace traditional advisors until the plan matures, the bigger question is whether robo-advisors can serve DC participants.
And while many advisors are upset, Empower targets potential clients in plans they brought to the provider, something Fidelity, Vanguard and Schwab have done for decades, and most don’t have the ability to meet the wealth needs of some participants, never mind about the low balance. accounts.
In its second year of existence, Meet Beagle has helped over 800,000 individuals consolidate DC plans strictly through B-to-C internet marketing. But it’s a transaction, not an ongoing service. Robos have had relatively little success overall, but have notably penetrated the carnage of regulations, distribution systems and technology inherent to the DC system.
But just like insuretechs, robos partnered with vendors and advisors who have relationships that have a better chance of success. And what better “app” for fintechs to be embedded in than workplace savings plans?
Fintech record holders are not yet successful in moving directly to plan sponsors even with government mandates that could turn the “sold not bought axiom” on its head. They partner with payrolls and others, like Vestwell, leverage advisors, brokers/dealers and even traditional recordkeepers looking to streamline processes and upgrade technology.
So no, technology won’t replace personal advisors, but those who don’t adopt and incorporate the coming wave of AI and fintech apps that will soon be integrated into workplace savings and benefits platforms could find themselves fooled on why competitors can charge so little for planning services or are able to work with smaller plans. Until it’s too late.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.
