New regs forcing ‘401(k) dabblers’ out of market: Expert

Nov 8, 2010 @ 2:10 pm

By Darla Mercado

Tougher regulation in the 401(k) marketplace is driving “401(k) dabblers” out of the plan advisory business, according to an industry executive.

“The 401(k) dabblers — the light advisers — they’re doing less 401(k) business than they used to,” Ron Bush, a principal at Brightwork Partners LLC, said during a panel at the 2010 SPARK Forum in Palm Beach, Fla.

“We think this is due to the growing complexity of 401(k)s and the growing regulatory requirements that make it more difficult for advisers to do a little bit of 401(k) business along with a lot of their retail business or group insurance,” he said.

In particular, advisers from wirehouses and insurance companies are fleeing the 401(k) market.

According to a survey of 300 advisers who work with retirement plans that Mr. Bush presented at the conference, wirehouses and insurers account for 25% and 22%, respectively, of distribution in the 401(k) market. Just a few years ago, however, insurance producers accounted for about 35% of the distribution, while wirehouses accounted for 25%.

“There is a migration out of these two large channel affiliations,” Mr. Bush said.

Further, plan sales from those two channels account for fewer assets versus their counterparts in the RIA channel, the survey found. The insurance and wirehouse channels only account for 18% and 17% of asset sales, respectively.

In contrast, RIAs and specialty retirement broker-dealers are gaining clout in the 401(k) market.

Currently, RIAs make up 13% of the channel distribution, while specialty broker-dealers and banks combined make up 8% of the distribution, the survey found.

Independent broker-dealers and financial planning firms are also gaining traction, comprising 14% of the channel distribution, according to the study.

Specialty broker-dealers and RIAS are also winning the asset race, accounting for 10% and 22% of asset sales, respectively.

The findings are reflective of a “phenomenon in insurance and wirehouse channels,” Mr. Bush said. Advisers who specialize in retirement plans are moving out of those channels, leaving behind brokers who primarily serve small accounts.

Accordingly, advisers who are “heavy” on the retirement market—who obtain at least 60% of their income from 401(k) business—have oversight over an average of $185 million in 401(k) assets. By comparison, advisers who get less than 20% of their income from retirements plan work with an average of $14 million in plan assets, according to the survey.

Over the last five years, there has been a shift to the “specialty” retirement adviser who isn’t necessarily selling the most plans, but has been working with larger plans and climbing further up-market, Mr. Bush added.


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