It’s understandable that an Education-Only ERISA rollover approach can cause angst for compliance and supervision, particularly as regulators have moved on from ADV and form CRS reviews in the best interest audit process and to a deeper review of the best interest rationale. After all, we are in the business of gathering assets, and to think 100% of rollovers at any firm are unsolicited may be wishful thinking.
But, with that said, the reasons DDW is hearing from firms transitioning from an Education-Only position on ERISA Rollover compliance have far less to do with defense from a regulation point of view and far more to do with an opportunistic growth mindset.
Let’s examine the top 3 reasons DDW helped transition so many broker-dealers to advice and recommendations on ERISA plan opportunities over the last year.
1—In first place is sheer opportunity. I have yet to find a firm that says its growth goals for 2025 are flat. The average American investor in their 40s changes jobs 2.9 times. In their 50s, it’s just shy of 2 times. Opportunity is constant, and waiting with fingers crossed for the client to knock on your door just isn’t worth it in today's highly competitive wealth management market. Broker-Dealers are finding it harder and harder to sit on the sidelines and making the changing to be proactive.
2- Financial Planning – as firms invest in financial planning technology and more importantly, changing advisor behavior to become wealth planners (and yes, I can say with great confidence, there is still an area with lots of work to be done) it’s counterintuitive to invest so much in a process to help uncover held aways assets and sit back and wait for the 401K to land on your doorstep. Particularly when the average 401K for a client near retirement is approximately $250k and the average 401K rollover during a client's working years is almost $100K. The opportunity to transition to proactive advice from education-only becomes a no-brainer. Add in the fact that most firms are also investing heavily in the client digital experience to find held-away assets… It's obvious why these firms would not want to leave these opportunities to chance.
3- Reality… at a recent conference with CCOs from some of the largest BD’s in the industry, we embarked on an AI conversation (shocker!). As firms pontificated about where AI is going and how we best leverage it near and long term, one common theme came up, which was AI notetaking. As much as AI can be a tool for note taking, bringing immediate efficiencies to anyone’s life, it's even more so with advisors. Advisors typically will have lots of takeaways from a client meeting and numerous client engagements throughout any one day. Though the opinion of AI for this purpose was less optimistic and more of a concern. This goes back to my earlier comments in this blog; the specific concern stemmed from firms that only allow education-only rollovers. More specifically. What was said was, “I’d be concerned about reading documented conversation between an advisor and a client and learning the recommendation was being made”. We are in the relationship management and advice industry, it would be hard for any advisor to sit on the sidelines and wait for these opportunities to hopefully be handed to them.
But maybe the simplest reason firms are switching from an education-only to a proactive recommendation model for ERSIA Rollovers is that the process has become easier, and more clarification has come to light through auditors' heightened focus on the best interest rationale. It doesn't have to be that hard to be proactive!
If you’re a firm navigating the transition or considering it, we would love to talk. DDWs had years of experience delivering best-interest tools with a focused design of 3 core philosophies
1 – Ease of Use for Advisors – it MUST be quick and painless!
2 – Less Integration Dependency for your tech teams – your tech teams have enough to do!
3 – Cost – we’re a due diligence firm, reg tech comes easy!