Some advisers to prosper under final 403(b) rules

Aug 6, 2007 @ 12:01 am

By Lisa Shidler

CHICAGO — The role of financial advisers won’t be diminished by the new 403(b) regulations released late last month, according to industry experts.

The regulations, which were issued July 23 by the Department of the Treasury and the Internal Revenue Service, are aimed at making 403(b) plans more like 401(k) retirement savings plans. The new rules go into effect Jan. 1, 2009.

“I think for advisers, the biggest value they’ll add is to help educate the sponsors so the transition is seamless and easy as possible,” said Linda Segal Blinn, Hartford, Conn.-based vice president of technical services with ING U.S. Financial Services of Atlanta. “Smart advisers will get to sponsors and tell them what they need to start thinking about.”

The regulations require plan sponsors to maintain a “written plan document,” which essentially spells out the terms and conditions of a plan. It also makes clear the responsibilities of all those involved in managing a plan.

Many 403(b) plans operate with minimal oversight from employers and no clear guidelines on who is responsible for what.

The requirement for a written document will likely force some school districts to pare back the number of 403(b) plans that they make available to employees.

“I’m relieved,” Arthur F. Grant, chief executive of Cadaret Grant & Co. Inc. in Syracuse, N.Y., said of the new regulations, which he said offer advisers a fair degree of flexibility.

To be sure, the regulations don’t completely close the gap between 403(b) and 401(k) plans. For example, non-profit organizations can still offer multiple plans to their employees — provided they maintain a written document for each plan.

The rule change comes as assets in 403(b) plans are on the rise. Assets in such plans are expected to reach $1 trillion in 2011, from $696 billion at the end of last year and $649 billion at the end of 2005, according to Cerulli Associates Inc. in Boston.

The 403(b) market has always been quite different from the 401(k) market, said Tom Modestino, a senior analyst at Cerulli. “There’s a lot of one-on-one servicing with an adviser in the 403(b) market — much more than on the 401(k) side,” he said.

“The adviser plays a big role in terms of adding comfort and being someone that the participant can trust,” Mr. Modestino added. “The adviser who does a good job will stand out.”

The new regulations will likely lead to consolidation among advisers who cater to 403(b) plans, Mr. Modestino said.

But that “shakedown,” he added, will ultimately be beneficial to good advisers. “If you’re a good adviser, and you know the space, you’ll know what to do to help a clueless K-12 person who has fears about what this all means.”

If advisers look at the changes as an opportunity rather than an obstacle, they will have better chances of gaining more 403(b) business, said Aaron Friedman, national-practice leader for non-profit consulting for The Principal Financial Group Inc. of Des Moines, Iowa.

“For advisers who already have a relationship with a plan sponsor on a 403(b) plan, I think this is a wonderful opportunity,” he said.

Even advisers who work closely with participants should succeed, said Bruce Corcoran, senior vice president of national market education for AIG VALIC, a Houston subsidiary of New York-based American International Group Inc.

“I think advisers that focus on this market and dedicate the time and expertise will be well served with client relationships,” he said.


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