Advisors pushing into 401(k) advice face data, coaching and legacy tech hurdles

Years of fee compression on both sides of the retirement business keep pushing advisors and recordkeepers toward the same answer: sell wealth services and financial planning to the participants whose accounts are already on the books. WealthManagement.com calls that an obvious additional revenue source, if not an easy one, and catalogs at length what stands in the way of collecting it. Momentum behind the convergence seems unstoppable to its backers, the account says, and the two forces driving it are described as powerful. So are the hurdles, which occupy most of the piece.

The second force is demand from a growing number of plan sponsors, who want their advisors and providers to offer holistic financial advice to all employees instead of cherry-picking the wealthy. Sponsors do the buying in this channel, which suggests their preference carries more weight than any individual participant's interest, and that sponsor demand is what pulls firms toward a model their pricing was not built for.

For an RIA principal the arithmetic bites early. Most employees and participants in defined-contribution plans do not hold enough assets to attract an advisor using traditional methods, where hours of planning are priced against a percentage of assets and a minimum sits below which the engagement cannot pay for itself. Participant work is a different business, requiring a standing cadre of financial coaches rather than a book of relationships and salespeople, and the account reports that most advisors, along with many broker-dealers and RIAs, have not built and trained such a bench. Engaging participants is extremely hard for a more basic reason: most experienced retirement plan advisors and wealth managers alike do not want to meet with them. Those findings together describe a service model that few firms have staffed and fewer still have asked their producers to sell.

Some providers do not want to offer participant data at all, preferring to engage those participants themselves, which is the competition at the center of convergence: recordkeepers and advisors courting the same households. Where data does move, the account describes it as volatile and in need of protection, with plan sponsor permission potentially required in light of recent litigation, and it notes that the data needs run beyond what is currently available to provide holistic advice adequately. No standard format exists for plan or participant data. Most broker-dealers and RIAs do not receive frequent feeds from recordkeeper partners, and only a handful of firms run a dashboard that lets them oversee all plans and participants under management by their representatives, which suggests everyone else is working from plan-level information where a coaching conversation needs participant-level detail.

Read as a list of dependencies, that inventory explains why the coaching bench is missing. Without a frequent feed there is no current balance to plan from, without a standard format every recordkeeper relationship becomes a bespoke build, and without sponsor permission the file may not move at all. The conversation the sponsors are asking for sits at the end of that chain.

The underlying technology is old. Recordkeeper systems are antiquated in places, some of them built in the 1990s, and the account says that inhibits the innovation and integration of third-party applications that participant-level advice would need. The recent release of FIS's cloud-based version of Omni and Relius is named as the development that could loosen that constraint; no timing or adoption detail accompanies it in the account. If a recordkeeper's system cannot pass clean data into an advisor's planning tools, nothing built above it works, whether that is the coach, the plan, or the cross-sell.

Convergence also sets nominal partners against each other, and the account frames it as creating potential competition between advisors and recordkeepers. The asymmetry runs one way: wealth advisors can add plan-level services more easily than retirement plan advisors can build wealth capabilities, because ERISA plans are complicated, and an RPA without a wealth function faces a choice between learning a new skill set and partnering with RIAs, a path the account describes as difficult. Broker-dealers have grown more interested in supporting representatives who want to serve defined-contribution participants, but traditional wealth services and ESOP prospecting, which avoids ERISA altogether, remain more profitable. That is the dilemma in miniature: the participant channel carries the growth story while the margin that funds it sits elsewhere in the same firm.

That ordering will not change on its own, because every obstacle on the list sits upstream of the pitch. Cheaper plumbing and a louder sponsor mandate would move the picture. The FIS release is the only concrete development the account names, and sponsor demand for advice across an entire workforce is the only force that turns a pitch into revenue. Neither addresses the arithmetic that started the problem, since too many accounts remain too small to pay for advice under the pricing advisory firms actually use. The count that matters is how many firms can see every plan and participant under their roof, because that visibility, more than the ambition, is what puts an advisor in front of a participant before the recordkeeper's own team gets there.