As the defined-contribution industry turns its focus to plan participants, Raymond James’ purchase of NWPS, a small record keeper based in the Northwest, may be a harbinger of the future for other distributors.
Many broker-dealers and mutual fund companies had record-keeping offerings in the past, but most have let them go. Does Raymond James see opportunities to monetize participants in retirement plans, especially given the launch of pooled employer plans, or PEPs? Is it that simple?
It is not simple because of potential conflicts of interests involved in offering proprietary services. Regardless, best-in-breed record keepers have been developing financial wellness tools to build their relationships with participants.
At the 2020 InvestmentNews RPA Convergence Broker-Dealer Roundtable, many broker-dealers were not clear on the definition of financial wellness and were concerned that each record keeper had its own financial wellness offering and that those differences could complicate the ability to service plans and participants. The most common definitions included products like managed accounts, rollovers, health savings accounts and those dealing with student loan debt, most of which did not necessarily provide a revenue stream to the adviser or firm, especially in a consulting relationship.
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Now let’s look at what wellness means to the record keepers’ revenue streams. Getting to participants as early as possible in their careers works best for this cradle-to-grave model:
- Managed accounts
- Student debt repayment
- Student debt refinancing
- Credit cards
- Home mortgage and refinancing
- Homeowners and auto insurance
- 529 college savings
- Life insurance and estate planning
- Personal savings
- Inherited assets in the coming wealth transfer between generations
- Disability insurance
- Consolidating retirement accounts
- Retirement income
- Annuities
Record keepers get a revenue stream on most of these products, and earn more on their own or through partnerships, which is a model that consulting firms like McKinsey are recommending. This is epitomized by Empower’s purchase of Personal Capital. The adviser can only share in a part of these revenue streams, assuming the record keeper is willing.
Could it be that Raymond James’ Institutional Fiduciary Solutions, whose senior managers have had a long career in record keeping, sees a way to cut to the front of the revenue line with the NWPS acquisition? Regardless of the offering — financial wellness in a PEP or a stand-alone plan — the revenue opportunity centers around the participant, with record keepers currently in the best position since they control the participant’s digital experience as well as the data.
Is the purchase of a record keeper by a broker-dealer now an anomaly or a trend? The rise of startup fintech record keepers that are willing to white-label and share data may push this from being an interesting experiment to a realistic method for advisers and broker-dealers to capture new revenue in the plan.
Several large broker-dealers have kicked the tires on either building, partnering or buying record keeping. The aggregators will need to invest to have a unique offering.
George and Abigail Revoir work at AMRev Consulting, where George Revoir is a principal.