Retirement plan advisers must weigh aggregator options

Retirement-focused aggregator firms have been swelling their share of defined-contribution assets and advisers, but joining such groups requires careful consideration. Each aggregator has a unique model that may entice some advisers but not others.

Broadly speaking, aggregators gather DC assets in two ways: an acquisition model, in which the aggregator buys an advisory practice, or an affiliation model, in which an adviser joins an aggregator’s RIA, broker-dealer or some other platform.

“I think if you ask every firm to put themselves in one of those buckets, they’d easily be able to do that,” said Pam Popp, president of Lockton Retirement Services, whose advisers oversee more than $60 billion in DC assets. “But then if you say, ‘How do you go about effecting that strategy?’ that’s where you’re going to get a ton of variability in the answer.”

Scale, resources

Many advisers turn to RIA aggregators for their scale and centralized resources and support in areas such as lead generation, practice management, investment research, marketing, training and technology.

But beyond these benefits, questions around brand, flexibility and ownership abound for 401(k) advisers looking at joining aggregators, according to industry consultants and executives.

Acquirers typically require advisers to use the aggregator brand name, for example. They may institute a level of control over the types of clients an adviser consults with, the services an adviser offers and client pricing. Advisers often become employees of the firm and relinquish ownership of all or part of their book of business.

However, an acquirer takes over most or all of the day-to-day running of the business — managing employees, for example — which frees the adviser to focus on sales and service. Some advisers may also like the prospect of conducting business as a recognized national brand.

John Spach, a retirement plan adviser, sold his business to NFP Corp. a few years ago in large part because he enjoyed the face-to-face interactions with clients more than the behind-the-scenes operations of his practice.

“I gleaned no satisfaction and joy from running the business and being responsible for everything going on inside the business,” he said.

On the other hand, advisers who affiliate can generally keep their independent brand, autonomy over client interactions and book of business while getting access to the aggregator’s tools and services. However, advisers are still responsible for managing their day-to-day operations.

There also may be restrictions on the sort of advisers allowed to affiliate with an aggregator. Geoff White, managing partner at GRP Financial, whose affiliating advisers oversee more than $70 billion in DC assets, said his firm typically works with practices generating a minimum of $750,000 to $1 million in revenue.

GRP Advisor Alliance also allows advisers who don’t want to affiliate with a different RIA or broker-dealer to have access to similar resources and services for an annual $9,600 membership fee. NFP also provides a membership model.

And, of course, there are no hard-and-fast rules when it comes to business models. Lockton, for example, employs what Ms. Popp calls a “hybrid” approach — the firm acquires an adviser’s book of business, but advisers become K-1 partners instead of W-2 employees.

Firms also have different compositions. Lockton, Gallagher, NFP, Bukaty Companies Financial Services, CBIZ Retirement Plan Services and Hub Retirement Services are part of larger corporations that have historically focused on insurance and employee benefits.

Acquirers’ deals also differ greatly from one another, said Michael DiCenso, president of DiCenso Consulting. Some firms pay advisers a high multiple for their book but may offer less money upfront; some offer cash, others equity; some buy 100% of the book, while others may buy only half.

Ultimately, though, it’s about the right cultural fit, Mr. DiCenso said.