Will Fidelity Steal Advisors' Rollover Lunch?

At this stage, Metter says, one thing is clear: "Fidelity's push is going to float a lot of immediate annuity distribution boats." It is also highly likely, in Metter's and others' view, that the likes of Empower, Vanguard, Alight and others will follow in this direction in the near future.

Threat to Rollovers?

David Macchia, an author and entrepreneur who founded Wealth2k Inc., which provides planning-based retirement income solutions, agrees with much of Metter's take. He tells ThinkAdvisor that all wealth advisors whose business depends in some part on securing rollovers from retirement plans must take note of what is happening.

"This is a big move by Fidelity Investments that holds the potential to shake up the rollover business, something that, I assume, weighed heavily in Fidelity's thinking," Macchia says. "Up to 100% of plan assets may be annuitized through Fidelity, with institutional SPIA pricing for the annuitant. That is going to be difficult to compete with."

Macchia notes that many wealth management clients have substantial money invested outside of DC plans that is not going to be directly impacted by this development. But, on the other hand, Americans have more money than ever saved in DC plans.

If the likes of Fidelity and others can create a compelling value proposition for investors to stay on their platforms, for example by offering them simplified access low-priced SPIAs that are managed in a fiduciary capacity, this could have a substantial impact on the pace and scale of rollovers.

Like Metter, Macchia predicts that the other leading retirement plan recordkeepers can be expected to move in a similar direction. For his part, Macchia says the RIA community is destined to lose clients and assets if they do not address what he calls a "widespread lack of expertise in retirement income planning."

"In my opinion, no wealth advisor can be sanguine about this development," Macchia says. "It is a bigger development than people realize. Frankly, those RIAs who continue to refuse to address longevity risk deserve to lose every last dollar of their constrained investor clients' retirement assets."

Macchia says traditional wealth advisors, if they want to protect their rollover businesses in the coming environment, are going to have to become much more capable as genuine income planners.

"The challenge with being a skilled income planner is that you can't be just one thing," Macchia warns. "You can't just be an investment person. You can't just be an insurance-focused person. Your solution has to be holistic and cut across the board, and it has to be worth the fee charged to clients. That's why it has been so difficult for these services to scale up efficiently."

Debate About Capacity Issues

One area where Metter's and Macchia's expectations differ is in terms of whether, and how, Fidelity and the rest of the major recordkeepers will be able to source the annuity contract capacity their solutions may eventually need.

Metter says the SPIA marketplace is sizable, but in his experience, there are few carriers today that process more that $1 billion in annual SPIA premiums. His understanding is that SPIA premiums for 2021 totaled some $6.4 billion across both qualified and nonqualified assets.

"With structured settlements in the range of $4.2 billion in 2021, that's about $10.5 billion total," Metter says. "In my opinion there is a possibility of capital strain that could raise premiums."

Macchia and others are less concerned about this possibility.

"I don't think capacity will be a problem, personally," Macchia says. "Fidelity and the insurance carriers have the scale to pull this off and make it durable, in my view. Again, their scale is a big part of the point. They will have an inherent advantage compared with the costs associated with distribution in the traditional channels. It will impossible to compete on price alone."