Cerulli and Morningstar find 10.2% of advisors' wealth clients come from DC plans

The defined contribution book has been sold inside advisory firms for years as a pipeline into wealth management, and nowhere has the pitch been louder than among the practices that own the largest plan relationships. New joint research from Cerulli Associates and Morningstar, first reported by InvestmentNews, now attaches a number to the flow: an average of 10.2% of surveyed advisors' wealth clients came from a DC plan relationship.

The ambition is far larger: of the hundreds of advisors surveyed, alongside dozens of interviews with home-office executives and individual advisors spanning wirehouses, RIA aggregators, independent practices and recordkeepers, 91.2% called building their wealth practice at least a moderate priority, and roughly 63% said the same about prospecting for wealth clients inside the plans they already serve. What Cerulli calls the Bridge to Wealth—the sequence of winning the plan and then systematically finding, vetting and converting participants into individual relationships—remains out of reach for almost everyone who has tried to build it at scale.

Chris Bailey, a director at Cerulli, locates the problem in lead quality rather than lead supply: growing a wealth practice organically is difficult, he said, and advisors may be missing warmer leads they already have relationships with inside their DC plans.

The stall is familiar elsewhere in the DC market. Advisers are on track to add $2 trillion in private assets while 401(k) sponsors remain stuck at 3 percent of plan assets in private markets, and conversion runs into a version of the same wall: the plan relationship produces contact rather than advice, and contact is worth only what a practice is built to do with it.

Cerulli sorted the field into three types, and the sorting undercuts any assumption that a plan relationship compounds on its own. DC plan specialists, who take roughly 66% of their revenue from retirement plans, reported serving about half as many wealth clients as their peers—a shortfall Cerulli attributes to a lack of technology and manpower. Wealth-retirement hybrids, with an estimated 23% of revenue from plans, sourced 15.5% of their wealth clients from the plan business, while wealth advisors, at 7% of revenue from plans, sourced 3.5%.

Read against each other, the figures point at the practice model rather than the participant list: the most plan-dependent practices serve about half as many wealth clients as their peers, suggesting a book organized around plan administration, committee work and compliance has neither the hours nor the headcount to run one-to-one advice at the volume a participant base implies.

The obstacles advisors name line up with that reading: among plan advisors who do not prioritize wealth growth, 37.8% said they do not have enough hours to prospect inside their DC plans, 24.5% lack the staff to offer wealth services to participants at all, and 20.9% concluded the extra revenue is not worth the effort.

Account minimums then screen the participants who do surface: just over half of advisors, 52.5%, require new wealth clients to bring at least $250,000 in new assets, and that share rises to nearly 60% among advisors whose practices are built mainly around DC plans. A minimum is a defensible rule in a practice with no spare capacity; the friction is that the same practice applies a full-service threshold to leads the plan relationship already makes cheap to reach.

Home-office support, where it exists, does not map onto the two halves of the work: among advisors not prioritizing wealth growth, 53.4% ranked help converting DC-sourced prospects among the top three resources their firm could provide, and 43.7% named help identifying those prospects. Advisors told Cerulli their home offices offer limited help generally.

The staffing question behind those answers has no quick fix: three plan-advisory executives graded the industry's recruiting pipeline from a D-plus to a B-minus, with central staffing cast as the answer rather than individual practices, and Cerulli expects roughly 35% of advisers to leave the business inside a decade.

Recordkeepers are not waiting on the advisory channel: Ascensus announced in September a referral platform for more than 16 million plan participants, citing Cerulli research that 63% of active 401(k) participants operate without access to a financial advisor. That is the bridge assembled by the firm already administering the plans, rather than by the practice sitting on the plan committee—and it puts the participant relationship in front of a party with every login and every payroll deduction.

The research does not measure whether referrals from a recordkeeper convert participants better than in-house prospecting. The research establishes that the plan book, as currently staffed, priced and organized, produces about a tenth of the wealth clients its owners expect, while the hybrids show a 15.5% rate is reachable inside a practice that runs both a plan book and a wealth book. The plan-centric majority now has three routes: home-office tools, central staffing, or stepping aside for a recordkeeper's referral platform.