At a meeting of 150 business professionals attended by the head of retirement plan solutions for Cetera Financial Group, just two of the six-figure employees said they had ever had their 401(k) advisor reach out to them. The next question: Did they have financial advisors?
“It was the same two people,” says Jon Anderson. “They’re saving a significant amount of money, yet they don’t really know whether they have a plan on track for a retirement meeting their goals. They have no idea.”
Cetera is embracing 401(k)s in a time of rapid changes at the network, but the concept of converting 401(k) participants into full wealth management clients may be as old as defined-contribution plans themselves. Union pensions also represent a big source of referrals for many thriving practices.
With 401(k)’s, the statistics clearly show the scale of potential business: assets in DC plans rose 7% year-over-year in the second quarter to $5.8 trillion, according to the Investment Company Institute. Cetera’s five broker-dealers manage nearly $30 billion across 12,000 retirement plans.
Still, only about 3,000 of the network’s 8,000 advisors serve 401(k) plans — and just 50% of the industry’s advisors have at least one form of employee retirement plan in their books, Anderson says. Cetera and other wealth and asset managers aim to help advisors expand the share.
The network is currently searching for a CEO, but Moody’s Investors Service’s latest periodic review cited its stability. On Nov. 6, Cetera hired an ex-Charles Schwab veteran as its chief strategy and execution officer. The firm has added record new assets in recruiting and acquisitions this year.
Cetera’s AdvicePay integration is paving the way for advisors to engage 401(k) participants more often by bundling various kinds of fees together. Anderson describes the approach as paradoxically “very low-tech” even though it’s made possible by technology.
“We’re jumping from no interaction at all to having a fully integrated technology approach. There’s a lot of low-hanging fruit that we can get right away in just freeing up the 401(k) advisors to reach out to the participants,” Anderson says.
“We can plug in our wealth management experience in the retirement plans,” he went on, “but let’s build the bridges and build the conversations and start having those conversations.”
AdvicePay’s software for electronic payment processing enables Cetera’s 401(k) advisors to combine their participant advice fee with those of other kinds of advice and consulting on either a fee-for-service or subscription basis.
Cetera has also launched resources for 3(38) services, in which advisors — rather than sponsors who are often small business owners — manage the fund lineup, selection and trade execution. The network offers advisors training, third-party administrator and reporting services.
Advisors who manage 401(k) plans drive greater scale and client satisfaction, according to Anderson. “On all measures that I’ve been able to track, they’ve been more successful,” he says.
A year after Genstar Capital purchased a majority stake in the firm for a reported $1.7 billion, Cetera also rolled out more outsourced marketing services for advisors under a collaboration with FMG Suite. An additional retirement planning tool called SetIncome opened this summer.
The increased home-office support has come alongside M&A activity for the company. Following the acquisition of certain assets of Foresters Financial’s U.S. BD and RIA, the network announced plans to fold its smallest IBD, Summit Brokerage Services, into its largest — Cetera Advisor Networks.
Recruiting and acquisitions have already brought more than 1,000 advisors with $19 billion in client assets to Cetera firms in 2019, President Adam Antoniades has said. However, the firm has yet to tap a new CEO since the surprise departure of Robert Moore in March.
The firm declined to comment on any timetable for a replacement. Its latest executive hire, former Schwab executive council member Andy Gill, reports to Antoniades and interim CEO Ben Brigeman. Gill is leading Cetera’s marketing, training, consulting and strategy teams.
In a statement, he said he’s “looking forward to contributing to the work underway to help the company in realizing its strategic objectives, bringing strategy and execution more closely together to deliver lasting value to advisors.”
Despite the major investments, Cetera parent firm Aretec’s adjusted debt-to-EBITDA ratio of 6.5x has come down from 7.5x in August 2018, according to Moody’s October review. The firm is finishing its third full year since onetime parent RCS Capital fell into bankruptcy protection.
Aretec’s “B3 corporate family rating reflects the firm’s weak profitability and debt servicing capacity, but also its strong franchise with a large advisor base,” Moody’s states. “Aretec has experienced stabilization in its advisor base and effective growth through acquisitions since it emerged from bankruptcy in 2016.”