The Age of 401(k) Cross-Selling Has Arrived 

Oh, what a difference a decade makes. 

Ten years ago, RIAs with both retail wealth management and retirement plan consulting arms often pledged not to cross-sell their wealth services to 401(k) participants, a move many employers viewed as a conflict of interest. Instead, the plan advisors focused on their employer clients, and wealth advisors only on the rare participant conversion. Today, things look a lot different, a new report from Fuse Research Network found, as retirement plan consulting and wealth advice increasingly merge into a single strategy. A majority (62%) of advisors report having converted at least 6% of DC plan participants into wealth management clients, according to Fuse. It could help financial advisory practices serve more clients.

“As financial planners, we provide 401(k)s to our closely owned client companies,” said David Demming Sr., president of Demming Financial Services in Aurora, Ohio. “It is not our main focus, but we certainly have more than 6% of participants becoming regular clients. It is similar to our working with [next generation clients] of families. Not initially profitable, but we’re investing in both their future and ours.”

The Easy Button

A big part of that success is because employers increasingly want advisors to work directly with their employees through financial wellness offerings or advisor-managed portfolios. Among all surveyed advisors, nearly 60% offer one-on-one consultations to participants in the DC plans they advise, Fuse found. These services expand the advisor’s role beyond plan investment committees and corporate management to direct engagement with individual participants. 

More than six in 10 (65%) advisors told Fuse researchers that converting plan participants is easier than acquiring clients through traditional marketing or referrals. The research also found:

• Among all advisors managing more than $500 million in assets, 41% converted more than 15% of plan participants into wealth management clients. 
• Among advisors managing under $100 million, only 28% of advisors reached that level.

In Demming’s experience, these converted clients are also potentially easier to serve, at least until their assets and complexity increase. “[Converting 401(k) participants] is also why we keep hiring and training young CFP candidates to both learn and have the flexibility to serve them,” Demming noted. “It is, partially, why we just hired two entry level CFPs in training this month.”

Natural Conversions. Financial wellness has certainly changed the game, Loren Fox, co-manager of advisor insight at Fuse Research Network, wrote in the report. “Once advisors are helping employees with budgeting, debt or retirement income planning, conversations naturally expand to non-plan assets,” she said. “That’s why we’re seeing retirement and wealth advice increasingly merge into a single client strategy.”