RIAs should pursue 401(k) plans

DOL changes are giving fiduciary advisers the edge in the defined-contribution marketplace

Jan 5, 2014 @ 12:01 am

Imagine an enormous, growing market in which the rules of the game are turning in your favor. That's what independent fiduciary advisers have in the 401(k) business, and yet few are actively pursuing their share of the more than $5 trillion in retirement assets.

Registered investment advisers are, for the most part, bit players in a 401(k) business dominated by a few giant brokerages, insurers and mutual fund companies. Two-thirds of RIAs handle 10 plans or fewer, while nearly 20% don't have any plans, according to a recent TD Ameritrade Institutional survey focused on the retirement market.

This imbalance may be about to change. New rules proposed by the Labor Department that redefine “fiduciary,” and others that mandate greater fee transparency, are widely expected to drive a significant shift in the market.

Nearly eight in 10 adviser respondents said that RIAs, as a group, are well-positioned to capture a bigger percentage of the 401(k) market. Nearly half said they see an opportunity to expand in the retirement business and are directing time and resources toward this goal. Another 19% who don't currently have plans are considering taking steps in the near future to get into the business.

LUKEWARM ON PROSPECTS

Yet when it comes to their chances for success, RIAs are lukewarm on the retirement plan business: Those who described their own opportunity as just “fair” or even “poor” outnumbered those who called it “excellent” or “very good.”

Even advisers pursuing these plans are not being all that aggressive: 60% of respondents said they plan to devote 10% or less of their 2014 marketing and sales efforts to retirement plans.

For advisers who aren't in the business but expressed an interest, the biggest hurdle isn't a lack of expertise or clients; they cited a lack of time and resources. RIAs also said that compliance requirements could be daunting, while nearly a third said they just aren't sure about pursuing a business that generates less revenue than traditional wealth management activities.

Many RIAs would like help with identifying and screening the various partners — record keepers and third-party administrators —- required to deliver 401(k) plan services.

These hurdles are not insurmountable. Indeed, numerous advisory firms have overcome their initial misgivings and found success by making retirement plan services an essential part of their practice.

Advisers certainly have a lot of built-in advantages, starting with tremendous cross-selling potential: Three-quarters of RIAs have at least 5% of their client base as business owners, and just under half have 10% or more. Rather than waiting for clients to seek help managing their company's retirement plan, RIAs can approach business owners to build on the existing relationship.

The first step is to get educated about the business. Find out what it takes to pursue retirement plans, and locate a lawyer who specializes in the rules of the Employee Retirement Income Security Act of 1974. There are compliance complexities and many moving parts. Vendors are needed, and advisers may need some help in identifying and vetting those partners.

TAKING THE PLUNGE

The reward for advisers who do take the plunge is a broader client base and a greater chance of capturing trillions in baby boomer wealth that will soon be rolling over from 401(k)s into individual retirement accounts. For advisers in the survey, the bulk of their clients are nearing retirement, with 61% of them 55 to 64.

Recent history shows that the 401(k) business can provide some much-needed growth and stability. While the U.S. stock market lost ground between 2000 and 2010, 401(k) and other defined-contribution-plan assets climbed 57%, thanks mainly to a steady flow of payday contributions. Over the past five years, retirement assets have grown three times as fast as non-retirement assets, according to Cerulli Associates Inc.

Analysts also forecast that firms that make the leap and build out a whole new business line around retirement can enhance their current practice and squeeze out the less serious dabblers.

It's difficult to make a living and master all the rules if you have just one foot in the pool. But make no mistake: The 401(k) business is an enormous pool, and the marketplace is a lot more open than many fiduciary advisers might think.

Skip Schweiss is president of TD Ameritrade Trust Co. and managing director of Advisor Advocacy & Industry Affairs for TD Ameritrade Institutional.

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