As the pace of change in the 401(k) industry accelerates, driven by artificial intelligence and the convergence of wealth and retirement, it puts pressure on all parts of a complicated ecosystem, changing and even disrupting long-term relationships. Those closest to the client are most valued, with advisors, record keepers and TPAs all thinking they are the most important.
At the Second Annual TPA Roundtable held at the University of Chicago’s Gleacher Center April 9 to 10, the focus was on how AI is changing the TPA business and how they can help support both advisors and record keepers capture more wealth business, which has become an existential exercise for both.
Warren Cormier, director emeritus at DCIIA’s Retirement Research Council, began the Roundtable reviewing open-ended pre-program interviews with TPAs on what their biggest challenges and opportunities were, which included:
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The expected tsunami of new plans, which is here now
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Technology innovation cannot be evolutionary; it must be revolutionary
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Fee pressure as client service expectations increase
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TPAs are still in a labor-intensive business, which is getting more challenging as boomers retire, while harder to recruit younger talent whose salary expectations are high
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Technology is enabling significant change, taking over repetitive tasks like census scrubbing and notifications, but automation does not change the outcome; it changes the process
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Jobs must become less administrative and more client-facing, adding value through consulting and building relationships
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Technology is accelerating TPA consolidation
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Some believe jobs will shift, not be eliminated, while others think there will only be sales and service people, not administrators
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There needs to be more guidance on PEPs
Day one focused on process automation driven by technology, especially AI.
“We are looking for people who can form relationships, not write code,” noted Dawn Genz, chief operating officer at Economic Group Pension Services. Bill Yorger, executive chairman at Blue Ridge Associates, quipped that while Fidelity spends an estimated $4 billion on technology, it has also recently adopted the TPA model.
“It’s all about AI,” stated Bob Carroll, MAP Retirement’s managing partner. “No one scrubs census data [at our firm] anymore. We get paid on consulting and analysis with clients. But it is hard to take introverted people and turn them into extroverts.”
Katherine Tipper, chief operating officer at Hunter Benefits, observed that all information is online now, but Leslie O’Bryan, chief executive officer at Benefits Administrators, noted that there is so much disinformation as well.
“We need to force clients to do the right thing,” stated Tim Kvam, chief operating officer at My Benefits. But he also acknowledged it’s harder to do than we think.
AI and its use, along with data, dominated much of the first day’s discussion.
“AI is not your ‘co-pilot’, it is your idiot intern,” remarked David Schultz from FIS.
“Automation is not AI,” stated Genz. “It is linking things.”
Anh Nguyen, chief transformation officer at Strongpoint Partners in charge of data analytics, observed. “You can build amazing tools, but what good are they if they are not being used?”
Genz noted that many people still do not trust AI, while some are concerned that it will replace them. “If leadership is not on board,” noted Kvam, “Then nothing will change.”
Turning to PEPs, Terry Power, managing partner at Daybright Financial and an early group plan pioneer, noted that they are expanding tremendously but need more guidance. Russ Hooker, Nova 401(k)’s CEO, said he was not comfortable with the growing number of open PEPs presumably by record keepers. And Carlo Guerrera, national sales leader at Pentegra, predicted that by 2030, when 300,000 new plans will have been formed, 50% will go into a PEP.
Day two focused on growth strategies, serving advisors and the convergence of wealth and retirement, which is bringing in more wealth advisors. The role of a TPA in convergence may not be obvious, so Mike Shamburger, Strongpoint’s head of national sales, asked AI, which came back with:
A retirement TPA can help advisors surface wealth management opportunities inside the retirement plan book of business by turning plan and participant data into actionable lead signals. The core value is that the TPA already sits on top of a large amount of participant-level administrative and behavioral information, which can be analyzed to identify who may need rollover, advice, or broader planning support.
Streamlining process and making sure there are no problems expected—helping an advisor win more business is a differentiator.
Mitch Haber, vice president of sales at IRALOGIX, said that Triple F RPAs need to reinvent themselves: “If you want to grow, you have to help others grow. … TPAs have a ton of data—AI can predict when a participant will separate.”
Nguyen said she wants more data, to which Schultz said FIS, which has launched a new cloud-based record-keeping system, has data on 60 to 70 million participants controlled by clients. Kvam observed that data should not be siloed to be useful while Shamburger noted that TPAs need to tee up that data for advisors.
MAP Retirement’s Carroll observed that most TPAs do not understand the advisors they work with and what their broker/dealers require, like IRA minimums, much of which record keepers know. Because they have relationships with almost all providers, TPAs can ascertain which record keepers each advisor works with, and which ones are truly supportive.
TPAs are the nexus between plan sponsors, advisors and record keepers and are not interested in leveraging wealth management services in a pivotal position to help their partners.
Whether because of AI, convergence, the tsunami of new plans or the growing number of wealth advisors encouraged by their home office to do more DC business, industry dynamics are undergoing an existential metamorphosis. TPAs play a critical role not just in servicing new plans, especially those brought by wealth advisors, but also because they have experience managing data and can play a pivotal role in the convergence as AI takes on more repetitive, administrative tasks.
Those that transform their tech and culture will rise to the top, while others, like Triple F advisors, will struggle to retain clients and explain their value proposition, especially to home office broker/dealers.
