Outside voices and views for advisers

2018 predictions for 401(k) advisers, distributors and record keepers

Here's a rundown of what retirement plan advisers can expect to see next year

Dec 20, 2017 @ 4:54 pm

By Fred Barstein

As we approach the end of 2017 and enter 2018, the adviser-sold 401(k) market begins its next phase of development. No longer an awkward, energetic teenager, the market is entering early adulthood, bringing with it heightened responsibilities, greater scrutiny and more opportunities — for some.

Let's first recap a few major trends for the adviser-sold market in 2017:

• Consolidation in the retirement industry affected all sectors, but particularly advisers (evidenced by the growth of RIA aggregators) and asset managers in the defined contribution market (especially those without viable target-date or passive funds, and those that own a record-keeping arm).

• Rise of target-date funds due to the growth of automatic enrollment and the use of qualified default funds.

• Rise of passive strategies due to increased price sensitivity.

• Growth of collective investment trust funds and custom products. That was due in part to fee sensitivity, as well as moving some revenue from asset managers to advisers and record keepers, who share some of the asset manager's fees.

• Government "intrusion" and private lawsuits, as evidenced by: the Department of Labor fiduciary rule (we have just begun to feel its effects) and state initiatives (both automatic-enrollment IRAs and state-level fiduciary standards).


• The demand for adviser services will only increase, while prices continue their precipitous decline with no end in sight. Advisers have a few choices: They can hold their pricing steady (unlikely), make less money (likely), or become better business managers or perhaps join a larger group to maintain profitability.

• Focus on plan design. However, advisers beware: automatic plan features such as auto-enrollment make advisers less necessary.

• Focus on financial wellness (that is, until plan sponsors realize there is very little change in participant behavior to justify the expense and effort).

• Greater use of CITs and custom products by larger adviser groups, creating competitive advantages and more revenue to offset declining fees.

• Legislation of open multiple employer plans, which will allow elite plan advisers to move down market to work with smaller 401(k) plans.

• More consolidation. Aggregators will continue to grow and new entrants will come into the market; regional advisory firms will grow and may have to decide whether to become an aggregator or join one as they have to get more scale to compete with larger firms. More elite advisers will join aggregators or regionals.

• Growth in the number of "core" advisers, or those with $25 million-$250 million in DC assets, as less-experienced advisers become more interested in the 401(k) market.


• Lawyers will take on more power as they dictate business practices for their advisers in an increasingly challenging and regulated environment.

• Focus on risk management for non-fiduciary advisers. More fiduciary training of advisers because of the DOL fiduciary rule.

• Independent broker-dealers take issue with hybrid RIAs who don't use the B-D's corporate RIA, resulting in adviser migration to a "pure" RIA model.


• Continued consolidation. The roughly 600 regional third-party administrators serving as record keepers will feel more pressure because of increased technology costs and heightened fiduciary liability, driven in part by private-equity firms taking a serious interest in consolidating this market. Look for at least three major deals in 2018 among the roughly 40 national record keepers.

• Fee compression will slow down for record keepers, in part because of…

• Greater usage of proprietary funds, whether in the form of TDFs, managed accounts, or co-created professionally managed investments in partnership with other asset managers and major advisory groups like aggregators.

Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University.


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