Welcome to this week’s edition of 401(k) Real Talk, where Fred Barstein, contributing editor for WealthManagement.com’s RPA channel, reviews all of last week’s industry news and selects the five most important/interesting stories.
Worth reading/listening/noting:
Read the full raw transcript below:
Greetings & a warm welcome to this week’s edition of 401k Real Talk. This is Fred Barstein contributing editor at WealthManagement.com’s RPA omnichannel and CEO at TRAU, TPSU & 401kTV – I review all of this week’s stories and select the most important and interesting ones providing open honest and candid discussion you will not get anyway else. So let’s get real!
FIRST STORY
The battle over DC participant data continues with Schwab the latest requiring users to reset credentials and voiding guarantees if shared with 3rd parties.
It’s a clear shot at firms like Pontera that enable advisors to manage their clients’ DC accounts. Pontera has recently called out Fidelity which, citing concerns about cybersecurity, has banned Pontera on their platform.
The battle over data and who can use is only going to heat up as both record keepers and advisors look to leverage their relationships with DC participants to cross sell financial services. But the Pontera service is different – participants are granting their existing advisor the right and ability to manage their DC plans deploying extensive cybersecurity protections.
Interesting that the 2 record keepers that have the most success cross-selling to participants are pushing back while others like Manulife John Hancock and 401Go are working with Pontera.
Next story:
While the Q1 deadline to the DOL in the president’s executive order to clarify how private market investments can be made available in DC plans will likely not be met due in part to the Government shutdown, Morningstar, through its affiliate Pitchbook, will be releasing the Evergreen Fund Indexes tracking these investments early next year.
The goal is to bring greater transparency to these mostly opaque investments which include PE, private credit, RE and infrastructure expected to cover $1tr in assets in 2030 up from $450bn mid 2025 and just $250bn in 2022.
Can Pitchbook get under the hood on these private investments which are mostly self-valued and provide greater clarity to investors and plan sponsors?
Next story:
ETFs have overtaken mutual funds in the personal investing arena but not in DC plans because of the inability of most major record keepers to handle them, all of which may change with recent filings of dual share classes.
Let by State Street, over 80 firms have filed with the SEC to offer dual ETF share classes of their mutual funds. ETFs have gained traction over mutual funds due to lower costs, greater transparency, trading flexibility and growing scale.
But the move to professionally managed investments like TDFs which are capturing over 60% of new contributions as well as managed accounts, is growing especially as the QDIA leaving less opportunities for ETFs. Perhaps ETFs will replace existing mutual funds as the move to passive investments continues driven by the desire for lower costs.
Next story:
Speaking of lower costs, a recent study by Wharton’s Pension Research Council shows how revenue sharing affects fund selection in DC plans. Investments with revenue sharing and are more likely to add and less likely to be removed increasing costs to participants.
Specifically, based on older 5500 filings, just 20% of rev sharing funds were deleted compared to 28% while the rev sharing are twice as much likely to be added and less likely to be replaced. Though the recent trends show reduction in the use of rev sharing, it is still prevalent as is placement fees paid to record keepers by asset managers and private label funds that allow providers to leverage their general accounts or fixed income investments.
All of which screams for RPAs to conduct even more thorough record keeper RFPs, something benchmarking will not uncover, especially with growing industry consolidation.
FINALLY
In his ongoing series about lessons learned from litigation, leading ERISA attorney Matthew Eickman and former RPA, explains how a recent case against Caesar’s 401k plan can help advisors highlight the value of a 338 co-fiduciary.
Caesars’ motion to dismiss was granted because the court found that they had exercised prudence in hiring and monitoring Russell as their 338 co-fiduciary while the motion by Russell was not granted due to possible loyalty issues.
Eickman opines that plans will not be held liable for acts of their 338 if they conduct an RFP to insure they are qualified, create and follow an IPS, get periodic reports and document regular committee meetings. The case is a great lesson as more RPAs are acting as 338 co-fiduciaries showing the the value of that service to plan sponsors.
FINISH
So those were the most important stories from the past week. I listed a few others I thought were worth reading covering:
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IRS raises 401k contribution limits
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Newly formed Wealthspire makes 1st acquisition
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Wells Fargo settles 401k/ESOP case for $84m and
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PSCA annual survey released
Please let me know if I missed anything or if you would like to comment. Otherwise I look forward to speaking to you next week on 401k Real Talk.