Some firms have signaled their intentions to create synergies between these two business lines through high-profile acquisitions. For example, Creative Planning, a wealth-management-focused registered investment advisor (RIA), gained inroads into the DC space by acquiring Lockton’s retirement business in 2021. Empower, the second-largest DC recordkeeper by DC assets under administration (AUA), signaled its entry into the wealth management space by acquiring Personal Capital in 2020. The following year, Empower announced that it would hire 325 employees for its retirement solutions group, which houses its IRA and brokerage units. For other retirement plan providers, such as Fidelity and Schwab, financial planning and wealth management has long been at the core of their business.

Cerulli anticipates ongoing DC recordkeeper and intermediary consolidation, and legal and regulatory pressures will continue to place downward pressure on fees in the DC market. As a result, wealth management will likely become even more attractive from a business strategy standpoint.

Coopetition: recordkeepers and plan advisors

Aggregators are widely viewed as the key plan-level decision-makers in the DC mid-market and, through acquisition and organic growth, have captured a substantial share of the DC intermediated assets—the top-10 retirement aggregator firms collectively advise on more than $1 trillion in DC assets. As such, aggregator initiatives to create synergies between their DC and wealth businesses pose a potential threat to recordkeepers that offer wealth management services.

The challenge for recordkeepers is determining how to navigate relationships with aggregators when it comes to working with higher balance participants and capturing rollovers. On one hand, recordkeepers will, in some cases, need to satisfy aggregators’ home-office personnel and field advisors to win and retain DC mandates, since, at an individual plan level, aggregators are often helping plan sponsors monitor and select their recordkeeper(s).

However, sacrificing rollover opportunities to placate the aggregators and maintain the plan may not yield desirable financial outcomes either. In many cases, a middle ground between the two providers will exist. Rather than ignore this inherent conflict of interest, Cerulli recommends recordkeeper initiate direct, constructive conversations with aggregators and plan advisors to address their respective approaches to capturing rollovers. If necessary, recordkeepers should be prepared to negotiate reasonable compromises on which participant demographics (e.g., retirement assets, investable assets) each party should target as potential rollover clients.

Tiered service models and digital advice solutions

In situations where aggregators are engaging with the higher balance participants in a plan, recordkeepers should consider employing a tiered wealth management service model (based on the investor’s household investable assets) to serve mass-affluent and middle-market rollover clients who fall a tick below the plan advisor’s purview. For instance, Fidelity offers its Wealth Management services to investors with at least $250,000 in investable assets and Private Wealth Management for investors with at least $2 million in investable assets. Similarly, Personal Capital (now part of Empower) offers a three-tiered approach: Investment Services for investors with $100,000 to $200,000 in investable assets, Wealth Management for investors with $200,000 to $1 million, and Private Client for investors with more than $1 million.

Although digital advice solutions have struggled to gain substantial assets, providers can leverage scalable digital advice solutions (robo or hybrid advisory services) to serve less affluent participants (or participants who are unwilling to pay the higher fees associated with a traditional wealth management relationship). For example, Vanguard Portfolio Advisor Services (PAS) offers personalized financial planning, investment advice, and access to an advisor for a minimum investment of $50,000 and only 30 basis points.