Wealth Managers and RPA Advisors
Key Takeaways
02
Methodology
Convergence Outlook
Convergence Development
Technology’s Important Role
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What’s Driving Convergence
01
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04
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Why Convergence Is Coming and What it Means
Introduction
Convergence and How Advisors View the Challenges and Opportunities That Lie Ahead
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“We have 52 company restaurants, making us the largest operator of the restaurant brand. So, we are right there next to the franchisee. We know exactly what it takes to run them and what it takes to build them and what the challenges are, be they labor or food or whatever.”
- Scott Deviney, CEO, Chicken Salad Chick
The overwhelming majority of wealth management advisors and retirement plan advisors — 78% — believe that their two business models are converging. That statistic and other findings in this white paper are based on a recent survey conducted by Wealth Management IQ, Informa and Marsh McLennan Agency that explored these two key segments of the financial advisory business. This white paper will examine the key findings of the survey, exploring why convergence is so widely believed to be coming, what’s driving it, how it is likely to unfold, and how advisors view the challenges and opportunities that lie ahead. The survey upon which this white paper is based categorizes firms in the following three ways: as those that provide wealth management only, offering no retirement plan advice; those that are retirement plan advisors (RPAs) and do not pursue wealth management clients from the plans they advise; and RPAs whose business model includes seeking out plan participants as wealth management clients. Responses from representatives of the relatively small group of pure RPA firms also are included.
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The information presented does not constitute legal, accounting, tax or financial advice. We try to provide quality information, but we make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in this webinar. Strategies mentioned in this webinar may not be suitable for you. As legal and other professional advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of a competent legal counsel or professional accountant, certified financial planner, tax preparer or other licensed professional.
The survey upon which this white paper is based categorizes firms in the following three ways: as those that provide wealth management only, offering no retirement plan advice; those that are retirement plan advisors (RPAs) and do not pursue wealth management clients from the plans they advise; and RPAs whose business model includes seeking out plan participants as wealth management clients. Responses from representatives of the relatively small group of pure RPA firms also are included.
Key Takeaway
1
No matter their advisory firm specialty — wealth management, RPA or hybrid — wealth managers across the board see their models converging, with 78% of respondents saying that the coming together of these industry segments is on its way. All segments also largely agree on the four main drivers of the convergence: demand among plan participants for more comprehensive advice (the response of 59% of those surveyed); technology making a combined service more feasible (54%); retirement plan advisors seeing wealth management as a growth opportunity (54%); and wealth advisors seeing the RPA business as a growth opportunity (52%). Just below that level of response, 40% noted a driver coming from RPA advisors wanting to continue serving participants after retirement — a response that recognizes the issue of an aging advisory industry and its succession-planning challenges. In thinking about convergence, it should be noted that the industry’s segments are significantly unequal in size. The wealth management sector dominates, trailed by hybrid advisers and the pure RPA segment. This mix is represented by survey respondents, 64% of whom said they primarily provide wealth management services, 27% an even mix of wealth management and RPA services, and just 8% who identified themselves as RPAs without a wealth management arm. A clear majority of respondents believe the wealth management and retirement plan advice (RPA) segments of the advisory business are converging. Those providing RPA and pursuing wealth management clients from retirement plans are especially likely to hold this view.
Are the Wealth Management & RPA Segments Converging?
2
Given the size of the advisory segments, convergence would imply that most of the coming changes will involve wealth managers adding RPA services. The data supports that view. When asked if they specifically would consider adding plan advisory services, 41% of wealth managers said they would consider becoming an RPA, while 21% said they probably would and 5% said they definitely would. Among wealth managers entertaining the idea of adding RPA services, factors they found appealing about the business were the fact that it provides reliable income, cited by 49% of respondents, and that demand for RPA services is growing (46%). Almost as many, 40%, said better technology is making it easier to add RPA services. Of course, not every wealth manager is eager to become an RPA. A significant 33% of wealth managers surveyed said they are not considering that option.
Wealth Managers’ Views
The RPA Perspective
Adding another dimension to the convergence theme are the hybrid advisors who currently provide a combination of wealth management and RPA services. Among hybrids that consider each segment strategic to their business, virtually all — 94% — plan to expand their wealth management business over the next two years, primarily by building the business organically with current staff, a direction noted by 67% of those hybrid respondents. One reason those hybrids are enthusiastic about expanding their wealth management offering is that they are successful in capturing as clients those plan participants who are retiring and exiting their workplace plan.
41% of wealth managers said they would consider becoming an RPA 94% RPAs plan to expand their wealth management business over the next two years
Those respondents providing RPA and pursuing wealth management clients from retirement plans are most likely to believe PEPs represent a significant growth opportunity for their businesses.
Are PEPs a Significant Business Growth Opportunity?
Respondents are by far most likely to offer individual wealth management as a strategic part of their business (84%) rather than an accommodation to either owners/top management or one more important RPA clients (18%). Virtually all (94%) plan to expand their wealth management business over the next two years, primarily by building the business organically with current staff (67%).
Wealth Management Services Offering & Expansion Plans
3
“It’s a fairly reasonable way to get new guests in your restaurant, partly because third-party delivery is bringing them there.”
There are several ways in which convergence can occur. Organically, wealth managers and RPAs who don’t already offer the other segment’s services could start adding them and have their current workforce begin to perform those services. They also may choose to hire advisors with the experience and knowledge their current team lacks. Among RPAs who pursue wealth management clients from the plans they manage, 44% said they plan to hire more advisors to scale their business, while 58% of RPAs who don’t pursue wealth management clients from the plans they manage said they would be hiring, as did 49% of wealth managers who don’t currently provide RPA services. A bigger opportunity may come from inorganic growth. A third (35%) of RPA advisors who pursue plan clients are open to the possibility of an acquisition by a larger firm or advisory practice. They say that providing continuity and access to high quality advice for current clients is the most important element of a successful deal, followed by maximizing firm valuation. Among all respondents, roughly one quarter are open to the sale of their firm, but not within the next two years. A similar percentage are uncertain about selling their firm, while about four in ten would not consider a sale.
Among Next-Gen Advisors, 39% believe technology is a differentiating factor for their firm, versus just 25% of Established Advisors.
Agreement Statements: Investments,Technology, & Scaling
While respondents report large levels of agreement with most statements presented in the survey, some meaningful differences emerged by segment.
NET Agreement (% Indicating “Strongly agree” or “Agree)
4
When asked about their primary challenges over the next three years, 51% of respondents said it would be organizing their business to be more efficient. That response was the choice of the largest number of respondents, underscoring the need for advisory firms to put in place standardized processes and procedures and to automate them. And that, of course, means greater investments in technology. On average, while about six in ten respondents said while they have the tech tools and people they need to scale their business, roughly two thirds said they plan to invest more in technology in the coming years. Roughly a third also said they would switch broker-dealers if that firm offered better technology and support. What’s more, by an average of about 10 percentage points, respondents are more likely to weigh technology needs ahead of HR needs when deciding whether to remain independent or consider a merger/acquisition or business sale. Investing in tech can be a time-consuming and confusing process, so input from broker-dealers, custodians and peers can be invaluable.
Advisors of all types recognize that efficiency is the key to maintaining margins and achieving scale
The most commonly cited technology challenges facing respondent businesses are offering greater customization, and personalizing information.
Biggest Technology Challenges
Methodology, data collection, and analysis by Wealth Management IQ on behalf of Marsh McLennan Agency. Data collected October 26 through October 31, 2022. Methodology conforms to accepted marketing research methods, practices, and procedures.
OVERVIEW
METHODOLOGY
RESPONSE MOTIVATION
Beginning on October 26, 2022, WealthManagement.com — on behalf of Marsh McLennan Agency —emailed invitations to participate in an online survey to active users. By October 31, 2022, WealthManagement.com had received 447 completed responses.
To encourage prompt response and increase the response rate overall, email invitations and survey materials were branded with the WealthManagement.com name and logo to capitalize on user affinity for this valued brand. Each respondent was afforded the opportunity to receive a $10 Starbucks gift card as a token of appreciation for their participation in the survey.
October 31, 2022. Methodology conforms to accepted marketing research methods, practices, and procedures.
to active users. By October 31, 2022, WealthManagement.com had received 447 completed responses.
the WealthManagement.com name and logo to capitalize on user affinity for this valued brand. Each respondent was afforded the opportunity to receive a $10 Starbucks gift card as a token of appreciation for their participation in the survey.
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Wealth Management and Retirement Plan Advice: The Key to Long-Term Growth
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Bridging the Gap
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How integrated retirement plan advice and wealth management strategies will power the growth of an industry
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