Retirement market needs 401(k) generalists, not just specialists: execs

Several arguments are made for why generalists should remain key players in retirement planning

Mar 21, 2017 @ 12:25 pm

By Greg Iacurci

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Generalist 401(k) advisers, or those who don't specialize in retirement plan business, are essential to a well-functioning retirement plan market, which shouldn't be served only by so-called specialists, say industry executives at the National Association of Plan Advisors' annual conference.

Some observers have speculated that generalist advisers would exit the 401(k) market as a consequence of the Department of Labor's fiduciary rule, which raises investment-advice standards in retirement accounts such as 401(k)s.

Others speculated some brokerage firms would disallow such advisers from servicing 401(k) plans altogether, rather than deal with an enhanced level of liability under the regulation, the implementation date of which is set to begin April 10 but may be delayed by the Trump administration.

It wouldn't be a smart business decision to say specialists are the only ones able to do 401(k) business, though, because the small-plan market (where generalists tend to operate) is the one that benefits most from advice, said Edward O'Connor, managing director at Morgan Stanley, at the Las Vegas conference on Monday.

Similarly, William Chetney, the CEO of Global Retirement Partners, a network of independent advisory practices with an aggregate $200 billion in retirement plan assets, said specialists wouldn't be able to reach nearly the same number of plan participants by themselves.

Large brokerage firms typically have designated retirement specialists who are able to work with defined contribution plans in a fiduciary role. However, their numbers are limited compared to their larger adviser forces. Morgan Stanley, for example, has roughly 300 specialists, out of the firm's total 15,000 advisers.

But large brokerage firms have adapted to the DOL fiduciary rule in ways that minimize their risk while allowing generalists to continue doing 401(k) business. And many of these reforms would stand regardless of the fiduciary rule's ultimate fate, firm executives say.

"Generalists are not going away," Mr. O'Connor said. "We need to have a lot of advisers touching a lot of small businesses."

"We'll innovate and create product to make the guardrails a little bit tighter for the generalists," he added.

For example, Morgan Stanley debuted a product for small 401(k) plans – those with less than $10 million in assets – whereby the firm will serve as the investment fiduciary and allow generalists to continue serving clients in a non-fiduciary capacity, through things such as plan education.

For plans with more than $10 million, generalists will have to partner with specialist advisers, who would serve as the plan fiduciaries, in order to continue working with 401(k) plans, Mr. O'Connor said.

The partnership concept is one being adopted by several other brokerages, such as Merrill Lynch. The wirehouse is expanding the ranks of advisers able to qualify as specialist advisers, but those who don't make the cut will have to partner with designated advisers to deliver fiduciary services to a 401(k) plan.

A trend toward partnerships had been occurring prior to the fiduciary rule, but the regulation accelerated the push, Mr. O'Connor said.

He conceded that such partnerships may be challenging for advisers, due in part to the various arrangements, such as fee split, on which generalists and specialists would need to agree.

"I know it's really hard to partner," Mr. O'Connor said. "It's not an easy thing to do."

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