Tensions are building over who has access to participant data in defined contribution plans as both record keepers and advisors look to cross-sell financial and other services driven by economic realities. While prices for almost everything else are rising, provider and advisor plan fees are declining dramatically for a myriad of reasons. At the same time, wealth practice fees have remained consistent, requiring fewer people and infrastructure, resulting in substantially higher margins.
All of which sets up potential battles between record keepers and advisors who need to partner to sell and service the plan with plan sponsors in the middle.
The journey to provide wealth services is not easy, requiring:
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A vehicle or the technology and the infrastructure
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Coaches and advisors to drive
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GPS or maps to guide, which need to be constantly updated
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Data as the fuel without which the trip cannot even start
Recently, Charles Schwab requested participants to reset their credentials, making it more difficult for them to use firms like Pontera, which allows participants to enable their advisors to manage their DC accounts, following a move by Fidelity. Empower and TIAA have been accused of targeting high-balance accounts, trying to move them to more expensive, proprietary products and services. At the same time, 70% of retirement plan specialists are trying to build their financial services capabilities, and those that do, according to a recent NMG Consulting study, are 15% more profitable.
“It’s the economy, stupid” is a catchphrase that means that the primary concern of American voters is the state of the American economy. What’s driving the 401(k) and 403(b) business? “It’s convergence, stupid.”
Accelerating this trend is the explosion of plan formation, driven mostly by state mandates, all of which is driving industry-wide consolidation. The stark record keeper McKinsey report and the NMG Consulting study indicate that providers and advisors that do not lean into the convergence of wealth and retirement at the workplace will struggle to compete and even survive.
Todd Kading wrote a provocative column suggesting that, like the alphabet, no one should own or charge for the data, which is either hopelessly naïve or deliberately self-serving. If data is like oil, then anyone should be able to drill for it, no matter who owns the land. And the driller should not charge even if they incur the costs of refining, storing and shipping. C’mon Todd! Even the alphabet has costs—we need to agree on the definition of words, educate people on reading and writing and police its use against hateful, slanderous or dangerous speech.
There needs to be guardrails about the proper use of data to protect privacy and cyber threat with many suggesting that participant and maybe plan sponsor permission is required. Consumers allow many firms to use their data, but only if they get value in return, and there is some ability to opt out, which is starting to happen with providers and advisory firms that educate and engage participants to earn the right to sell them stuff.
ERISA has an added layer of protection because plan sponsors are investment fiduciaries, as are most plan advisors and RIAs—but not most providers. DC participants do not understand the difference, which is at the heart of some of the lawsuits. And though Schwab and Fidelity cite cybersecurity concerns regarding Pontera, many believe that the real reason is that they want to shut out competitors, especially to participants with advisors who tend to have the highest account balances and most investible assets. These participants have no choice about who manages their DC plan, and prohibiting them from using their wealth advisor seems anticompetitive and wrong.
So who owns the data or who has the right to use it? The participant owns their data and should have the right to choose who can use it. But we know that participants, especially those without an outside advisor, are plagued by inertia, so plan sponsors have to protect them. Record keepers spend tens of millions of dollars to get and manage the data, and they are starting to get paid for it, as reflected in the recent deal by JP Morgan to charge data aggregator Plaid. Providers should have the right, with plan sponsor permission, to serve participants if they clearly state that they are not acting in their best interests if they are not willing to be a fiduciary.
Advisors also have the right to serve participants, but it’s not God given—they need to market themselves and have the capabilities to offer high-quality services. If they do not, complaining and trying to stop providers from educating and engaging with participants is certainly not in participants’ best interest. Some advisory firms, especially those that also offer risk management services, are not ready to allow their advisors to access and use participant data, while others, like Morgan Stanley and Prime Capital, as well as most aggregators, are comfortable providing safeguards.
So the reckoning over data is coming between record keepers that want to cross-sell, which may be most, if not all, of them, according to McKinsey, either alone or in partnership with advisors, and advisory firms that have similar ambitions, which the NMG Consulting study indicates may be required to remain competitive. But without data, the car with professional drivers and detailed travel plans will just sit in the driveway, and to suggest that it should be free is not helpful.
