Cerulli and Morningstar find just over 10% of wealth clients come from DC plans

New research from Cerulli Associates and Morningstar finally attaches a number to the prospecting gap the retirement business has talked around for years. Just over 10% of the wealth management clients advisors serve began as defined contribution plan relationships, while referrals, acquisitions and ordinary prospecting deliver the rest, even though the same firms already hold a list of prospects they never had to buy in the participants of the plans they serve.

The unreached side of the ledger is larger: about 60% of the retirement plan participants Cerulli surveyed pay no advisor, a group that includes many mass-affluent and affluent investors. Chris Bailey, a director in Cerulli's retirement practice, told Financial Advisor that some of those households hold several hundred thousand dollars in investable assets and still assume advice is out of reach, while others simply don't know how to find an advisor.

The advisors themselves aren't treating this as news: nearly 40% told Cerulli they lack the time to prospect for wealth clients inside the DC plans they serve, and they also told the researchers they need greater help from their firms with identifying prospects and converting them into clients. Brock Johnson, president of Morningstar Retirement, frames the fix as tooling in the report — advisors are convinced the bridge to wealth is worth building, he says, and they need to build it without adding headcount or hours.

The spread any tool would chase is wide enough to matter. James Smith, Morningstar's global head of workplace business strategy, says some RIA aggregators that run both retirement-plan specialists and a wealth management operation have converted plan participants into wealth clients at rates as high as 30%; Cerulli hears similar figures from recordkeepers it counts as successful, and Bailey calls converting 30% to 40% of rollover inquiries into IRAs an exceptional high-water mark. Smith's proof that the money moves regardless is rollover flow: the data, he says, shows how much is coming out of plans, and the opportunity is now less a matter of awareness than of addressing it systematically.

This publication has been skeptical of the retirement-plan-to-wealth cross-sell on the grounds that owning the plan and owning the participant have proven to be different businesses, and the 10% origination figure is the best evidence that skepticism has had, but the 30% figure complicates it. Read side by side, the two numbers suggest the conversion rate tracks ownership of the client more than the sophistication of the software, because the aggregators at 30% are the ones Morningstar describes as housing a retirement specialist bench alongside a wealth desk — the structure that, if the origination number is any guide, most firms have not built.

The constraint that gets the least attention is the one no software fixes: asset minimums sit on Cerulli's list of what keeps advisors from converting plan participants, alongside capacity limits and fragmented participant data, and a household with several hundred thousand dollars that has already concluded it isn't rich enough for advice has a pricing and eligibility problem before it has a data problem. Neither Cerulli nor Morningstar says which seat inside a firm should own a participant's name; the 10% figure suggests that, today, it belongs to no one.