Welcome to this week’s edition of 401(k) Real Talk, where Fred Barstein, contributing editor for WealthManagement.com’s RPA channel, reviews all of last week’s industry news and selects the five most important/interesting stories.
Worth reading/listening/noting:
Read the full raw transcript below:
Greetings & a warm welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV – I review all of this week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
FIRST STORY
Vestwell announced a $385m Series E Round led by Blue Owl and Sixth Street Growth plus other new and current investors bringing their total capital raise to $660m. Though the proceeds are earmarked to buy the 27,000 non-Gusto Guideline plans, CEO Aaron Schumm stated they will also increase their tech spend, especially AI, and hire more people.
With over 60,000 plans and $50 bn in assets plus major distribution partners like Morgan Stanley, JP Morgan, Manulife John Hancock and Amazon as well as payroll partners and internal resources, Vestwell has vaulted into the ranks of a major record keeper well positioned to leverage the convergence of wealth, retirement and benefits at work along with the explosion of small plans.
Read my recent Wealth Management column about how Schumm could be the 1st industry outside to radically change 401k plans.
Next story:
Speaking of convergence, Fuse, a leading wealth management research firm led by industry icon Neil Bathon, reported that the majority of the 500 advisors surveyed were able to convert at least 6% of participants in DC plans they manage into wealth clients. The rate is highest for advisors with <$500m and 45% have converted 11% or more.
Two thirds of advisors reported that converting DC participants was easier than seeking new clients through traditional methods.
As plan formation explodes and more plan sponsors want their advisor to help employees with financial issues, expect to see more wealth advisors, many with deep relationships with business owners and managers, to focus on DC plans making it even harder for RPAs stuck in the 401k bubble to compete.
Next story:
As the pendulum swings to more assets in CITs, buyers need to be cautious not blinded by the siren’s call of lower fees. Analysts at Innovest, a leading independent advisory firm based in Denver, highlight the 4 misconceptions about CITs.
First, mutual funds and CITs are not created equally with the former overseen by the SEC with greater scrutiny and protection.
Secondly, lower costs do not always equate to better returns in CITs. Not only are the underlying cost of the securities held in the CIT that mirror a mutual fund likely higher, there are restrictions on the types of investments they can hold like commodities.
Thirdly, though many CITs have tracker symbols, not all do and information may not be identical.
Finally, they are not available to all investors like 403b or 457 plans or IRAs.
Not mentioned is the danger of one firm having a virtual monopoly in the RPA 401k world which can lead to abuses and fiduciary issues as well as raise costs unnecessarily.
Next story:
While private market investments are eagerly preparing to capture DC assets, plaintiffs’ attorney are likewise eagerly awaiting their adoption. Jerry Schlichter whose firm heralded ERISA litigation and has won $750m for clients since 2006, warns that buyers should beware and put aside money to defend lawsuits.
Though a safe harbor could be coming, returns could be lower as plans, or funds that make these investments available, may need to hold more cash to handle redemptions.
Schlichter warns that private markets have huge exposure and will require more due diligence by fiduciaries on relatively opaque investments. Progressive plans deploying private investments are likely to face costly litigation and could lose – even if they win.
FINALLY
401k plans are an illusion although a very useful one like time and money. They are just an aggregation of individual accounts changing minute by minute.
Read by recent Wealth Management column about how understanding this illusion is the key to unlocking their true potential.
FINISH
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
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How RPAs are growing in a margin constrained world
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Advisor M&A breaks records in 2025
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New Edelman CEO opines on strategy to leverage convergence of wealth and retirement at work
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NEPC annual study shows plans are fleeing to passive investments and re-accessing managed accounts
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Cerity merges with $1.2 trillion institutional consultant
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.