At a recent industry conference that primarily attracted consultants and providers for the largest retirement plans, a Willis Towers Watson representative asked me in the elevator where I was from. I answered, "The dark side."
He laughed, but the truth is, that's not far off from how the institutional defined-contribution market views the retirement plan advisers who proliferate in the small and midsize DC market.
Just what is the difference between institutional consultants and retirement plan advisers, and are their worlds about to collide or merge?
Institutional consultants and providers, who primarily work with plans that have more than $500 million, know very little about the retail DC market and how it works. Which is fair because few retail DC advisers and providers cross over to the institutional world, and most have very limited working knowledge of how mega plans work.
A few money managers and even fewer record keepers work in both markets, though they tend to do so via separate divisions that rarely interact.
Institutional consultants such as Aon Hewitt and Willis Towers Watson focus on retirement plans with more than $1 billion. There are about 20 such companies in the country.
There are another 50 to 75 regional advisory practices that may dip down to plans with as little as $100 million, but focus on those with at least $250 million.
Retail plan advisers include "emerging" (or inexperienced) advisers, numbering over 200,000; "core" plan advisers, who oversee $25 million-$250 million in retirement assets, of which there are more than 20,000; and almost 3,000 "elite" advisers with more than $250 million under management.
Some retirement-focused aggregator firms, such as CapTrust, SageView Advisory Group and NFP, primarily buy elite advisory practices, while others with an affiliation model, like GRP Financial and Pensionmark Financial Group, attract core and elite advisers.
There are many similarities between institutional consultants and retail advisory firms. Both are experiencing rapid consolidation as the demand for services has increased while fees have declined. Both are looking for revenue from managing assets; they're also looking to move down-market where there is less price sensitivity, which will further drive down prices.
But institutional and retail advisers, even the elite plan advisers who regularly compete against regional consultants and to a lesser extent the national consulting firms, are fundamentally different based on one factor.
Retirement plan advisers cut their teeth working with individual investors, with most supporting a wealth management practice. Institutional consultants only speak to employers' retirement-plan committees, chief investment officers and C-suite executives and would not know what to say to plan participants, assuming they knew where to find them. Only retail advisers have the ability to engage participants; other than through technology, their institutional counterparts have no chance.
Institutional consultants, though, have a greater knowledge of other types of retirement plans, like 403(b)s, and defined-benefit and nonqualified plans, as well as other markets like union and government plans. They also are more likely to deal with other benefits, including healthcare and health savings accounts.
Dick Davies, an industry consultant who has worked at AllianceBernstein and Russell Investments, told me, "It used to be easy to tell the difference between retail and institutional consultants based on how they get paid."
That's no longer true, as fee-based arrangements have become prevalent for elite advisers, as they had been for institutional consultants.
Mr. Davies said there is now a "messy middle" made up of the aggregators and regional advisory firms.
Ultimately, plan advisers and consultants aren't colliding head-on — they're merging.
The messy middle, which includes aggregators, regional firms and elite advisers, just might hold the key to solving our country's retirement crisis. They seem to have incorporated the best of both worlds through high-level investment consulting and plan design while also engaging with plan participants.
While it's doubtful the messy middle will merge with the national institutional firms, they might ultimately partner with the national firms by providing one-on-one participant advice in mega plans.
Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews' Retirement Plan Adviser newsletter.