The retirement planning industry has a tough time reaching many people without traditional advisors. There are major problems like not having enough data and people not being very engaged. Not to mention, the industry itself makes things difficult too. Providers and advisors can help but they often don’t. Key hurdles include making retirement plans accessible to smaller entities and ensuring retirement income, which demand innovative business models and technology, not typically aligned with current providers and advisors.
Another crucial issue lies in conflicts of interest. While record keepers transparently sell their products and services without co-fiduciary obligations, advisors often market themselves as co-fiduciaries, raising questions about additional compensation for recommended products. Moreover, there’s a concern about retaining assets of terminated employees and facilitating retirement income solutions, complicated by potential reluctance from some record keepers seeking to safeguard their rollover business, which offers higher margins. The industry’s insularity, partly attributed to regulations and technology, hampers innovation and results in outdated systems compared to other sectors, prompting a need for transformation and adaptation to consumer demands. Fee compression, consolidation for scale, and revenue generation further accentuate the challenges, necessitating clear guidelines for co-fiduciaries to maintain ethical practices and fair dealings in serving plan sponsors and employees.
For more on this, read Fred Barstein’s article entitled: “401(k) Participants Held Back by Industry Competition, Consolidation, Conflicts of Interest” on www.wealthmangement.com.
