Outside-IN

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).

ADVISER PREDICTIONS

• 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.

BROKER-DEALER PREDICTIONS

• 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.

RECORD-KEEPER PREDICTIONS

• 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.

0
Comments

What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Mar 14

Conference

WOMEN to WATCH

InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video

INTV

Where in the U.S. are RIAs growing the fastest?

InvestmentNews' deputy editor Robert Hordt talks to senior columnist Jeff Benjamin about his report on how registered investment advisers are faring in different regions of the country.

Latest news & opinion

UBS sues Ohio National over lost variable annuity commissions

Wirehouse joins handful of other firms seeking to prevent insurer from cutting off flow of adviser trails.

Regional broker-dealers quietly making comeback now, but the future remains uncertain

After a period of decline, the regional brokerage industry is scoring recruiting gains at the expense of wirehouses.

With stock market in a correction, is a recession just ahead?

Some say the market is overreacting to bad news — but what if it's not?

10 tips for hiring top young advisers

Hiring is not easy and retaining good employees can be even more difficult. Here's a roadmap for bringing on new advisers and training them — and even firing them, if necessary.

Kestra Financial latest broker-dealer to be put up for sale

The independent B-D's owner, Stone Point Capital, has tapped Goldman Sachs to lead the deal.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print