Sharing is caring … except when it comes to 401(k) credentials, apparently.

Charles Schwab is asking clients, whose advisors use information-sharing fintech tools to access their workplace retirement accounts, to reset their login credentials, citing security concerns. It marks the latest skirmish in the battle between recordkeepers and advisors for access to America’s 401(k)s. “Schwab is honored by the trust our clients place in us to help them achieve their financial goals and protect their personal information and assets, and we take that responsibility very seriously,” the firm said in an emailed statement.

And Stay Out

In order to provide the best financial planning possible, advisors like to have access to the whole of a client’s portfolio, using platforms like Pontera or Future Capital to evaluate client assets held in workplace retirement plans. However, recordkeepers aren’t prepared to hand over the keys to their 401(k) kingdoms. “As part of our security processes, we determined that some clients provided login access to third-party data vendors which may void policies we have in place to protect clients through our Schwab Security Guarantee,” the company said. “We required these clients to update their account information.”

Last month, Fidelity sent customers similar notifications, and some clients were temporarily locked out of their 401(k)s. In a few instances, customers allegedly were required to go through an onerous re-verification process that involved emailing copies of their driver’s license or passport to Fidelity. Pontera CEO Yoav Zurel called it an “anticompetitive power grab” and said Fidelity was “compelling customers to use Fidelity advisors for their own 401(k) accounts, or no advisors at all.”

While Schwab and Fidelity argue these measures are in place to protect customers, advisors say they can be restrictive and keep them from fulfilling their fiduciary responsibilities. “I genuinely don’t understand how any advisor can call themselves comprehensive if they’re not monitoring their clients’ outside accounts,” said Michael Lofley, a CFP at HBKS Wealth Advisors. “If you’re not watching the 401(k), the annuities, the HSAs, the brokerage account at another custodian, or the inherited IRA elsewhere, then you’re not actually giving advice on the whole household.”

More than One Way to Skin a Cat. Credential-sharing platforms are ultimately a convenience to advisors, and even if they can’t be used, there are still ways to gain access to client’s 401(k)s, said Andrew Herzog, a CFP with The Watchman Group. “It’s a bit more legwork, but advisors can screenshare with clients to rebalance or evaluate employer-sponsored retirement accounts, bank accounts, self-directed IRAs, etc.,” he told Advisor Upside.

When are all the tokens going to get here? It could be a while.

While tokenized assets are expected to be to ETFs what ETFs are to mutual funds, promising cheaper fees, greater transparency and practically instantaneous transactions any hour of the day, they still haven’t become mainstream outside of some high-net-worth portfolios. Today, roughly $30 billion of real-world assets sit on blockchain, which is tiny compared with the $250 trillion global securities market. Advisor adoption of tokens — digital representations of real world assets — is low and several hurdles stand in the way, including a lack of regulatory clarity and potential security risks.

“We’re in the early innings of tokenization, particularly in wealth management,” said Nader Souri, head of corporate banking at BNY. “There will be a positive effect in the future around access, especially to asset classes like real estate or alternatives that are hard to trade today.”

A Better Mouse Trap

Tokens don’t change the basic principles of portfolio construction, and it’s not super important what the technology wrapper around an investment is, Souri told Advisor Upside. “What’s important is the underlying strategy and how it fits in with an end user’s investment guidelines and capacity to take on risk,” he said.

Tokens’ programmability could, however, reshape advisory work. Because they can trade peer-to-peer and execute automatically once certain conditions are met, advisors may find themselves leaning even more heavily toward financial planning over hands-on investment management. “I’m not suggesting that this is the end of advisory services, but that advisors will need to rethink their value proposition,” said Matt Higginson, a partner on McKinsey & Co.’s financial services and risk practices team. “There’s going to be a shift in the activities they do, and there will likely be a shift in the segmentation of the market to whom they provide advice, probably to more self-guided investors.”

Broken Token

For now, there’s just a lot of uncertainty around tokens:

• Custodians, asset managers and wealth firms want clearer rules on how tokenized assets should be classified, supervised and integrated into today’s financial system, Broadridge reported.
• The International Organization of Securities Commissions has also warned that tokenization can amplify existing risks in traditional products and introduce new ones from ties to the crypto market to confusion over whether investors own the underlying asset or merely a token representation.

Plus, ETFs and mutual funds still work extremely well for most clients, leaving advisors little reason to adopt tokens unless the benefits become clear. “If there’s no incremental benefit and the infrastructure is immature, no one is going to go through the additional trouble of getting on the blockchain,” Higginson said.

Wealth managers are stuffing their menus with more offerings than a Cheesecake Factory, but clients aren’t biting.

While advisory firms continue working to become one-stop shops, clients know what they like and are sticking to it, according to a recent Cerulli report. Advisors reported offering six out of the 11 major planning services — such as estate planning, tax preparation, insurance, elder care planning and more — but clients use fewer than three of these services, on average. The gap stems from the fact that advisors might not know to broach a topic like elder care with a financial planner, experts said. Making sure clients know about all the services available to them can also help advisors provide more value and ensure they have better investing outcomes.

“Clients don’t know what they’re not getting, and advisors are sticking with what they’re most comfortable with,” said Scott Smith, senior director of advice relationships at Cerulli. “They aren’t being proactively offered that by advisors: ‘I’m doing the thing I’m comfortable with. My clients are happy. Why would I risk it?’”

What A Client Wants

Another reason for the growing gap is firms’ fear of being replaceable. More and more advisory teams want to assign themselves the catchall label of comprehensive wealth management, Smith said, especially since the more services a client trusts an advisory team or firm to handle, the more likely they are to stay. This becomes especially important for long-term viability, he added, as younger clients are more likely to stick with a firm for decades, rather than switch later in life. “[Advisors are] looking at their tomorrow, or their next year, and their 100 clients aren’t going to get up and move because they aren’t giving tax optimization,” he said. “But for the firm with a longer horizon, these things will have an impact more so than [for] an individual advisor.”

According to the Cerulli report:

• 48% of clients received comprehensive financial planning last year, a figure expected to rise to 55% by next year.
• Retirement advice ranked the highest among services used by clients.

Partner Up. Smith estimates that about a quarter of current clients classify as “prospects,” meaning they might work with a bank or 401(k) provider but aren’t getting specialized advice. Prospects settling on a long-term financial planner are growing progressively younger, which has led to a proliferation of institutions buying up smaller entities, such as stock-plan administration platforms, to cater to future high earners.

“Firms are gobbling up those early-career wealth accumulation companies. If you’re a 28-year-old and just got stock credit … That’s going to be a rich person someday,” Smith said. “Bringing those people on as clients is a real challenge that, if you haven’t done it by age 50 … they’ve probably found a dance partner already.”