Fisher Investments growing fast in 401(k) market

Its 401(k) Solutions business, only four years old, has amassed more than $400 million.

Fisher Investments, one of the largest registered investment advisers in the country, is rapidly growing its fledgling 401(k) advisory business, which some industry observers see as an emerging threat to retirement plan advisers working with smaller 401(k)s.

The Camas, Wash.-headquartered firm, which manages money for both high-net-worth individuals and institutions, has been around nearly four decades. But its 401(k)-plan advice business — its newest business line, called 401(k) Solutions — only launched in 2014.

As of March 1, 401(k) Solutions had $362 million in retirement-plan assets under advisement. There’s also more than $80 million in assets set to join the platform, said Nathan Fisher, founder and senior executive vice president of the 401(k) business. That’s a total of more than $440 million.

“I think that’s pretty remarkable,” Fred Barstein, founder and CEO of The Retirement Advisor University, said of the growth rate. Combined with Fisher’s infrastructure, brand and access to capital, retirement plan advisers should be “nervous,” Mr. Barstein said.

Fisher Investments is the second-largest advisory firm by total AUM, according to InvestmentNews’ RIA Data Center. It had almost $100 billion in assets under management at the end of 2017, according to a filing with the Securities and Exchange Commission.

401(k) Solutions focuses predominantly on smaller 401(k) plans — those with between $1 million and $10 million — making Fisher’s AUM growth even more pronounced. (Often, financial advisers specializing in retirement plans focus on larger plans.)

Nathan Fisher, son of Fisher Investments founder Ken Fisher, sees the greatest opportunity in the small 401(k) market.

“Pretty much every retirement plan adviser I know wants to work with small plan sponsors. They just don’t know how to do it yet,” Mr. Fisher said.

“That’s where the greatest need is,” he added, noting that small plans often face conflicts of interest, “mediocre” fund lineups, “bad” record-keeping solutions and “poor” participant service.

“There are better margins there. We can grow fast,” Mr. Fisher said. “The middle market is getting compressed. It’s not a great place to be.”

Prior to formalizing a 401(k) advice business in 2014, Fisher Investments had some 401(k) clients it had picked up through its work in retail wealth management — a similar experience to that of many other financial advisers who manage money for business-owner clients.

401(k) Solutions has had a roughly 50% average compound annual growth rate since inception, Mr. Fisher said. He has a 70% target for 2018.

Keith Gredys, CEO and president of Kidder Benefits Consultants Inc., an advisory firm specializing in the small market, said Fisher’s brand recognition and marketing machine are an advantage for the firm.

“The branding definitely helps with respect to other RIAs, which tend to be smaller,” he said. “They promote, promote, promote. It’s a familiar name.”

Fisher’s 401(k) advice business has three types of service roles. Retirement plan consultants (of whom there are eight) are essentially salespeople interfacing with employers; retirement counselors (five) are the main point of contact for ongoing service to employers and participants; and service associates (eight) support retirement counselors.

Fisher offers two investment lineups for 401(k) plans — a “core” lineup, with six funds, and an “extended” lineup, with 18. The firm also packages these into a range of model portfolios, with different asset allocations.

Fisher is an outlier among advisory shops from an investment standpoint — it has built its own collective investment trust funds for 401(k) plans and doesn’t charge an investment-management fee to investors. The only fee Fisher receives for its 401(k) services is an annual advisory fee.

Fisher serves as a discretionary fiduciary adviser to all of its clients, and to charge a fee would be against rules under the Employee Retirement Income Security Act of 1974.

“I’ve never seen it before,” Mr. Barstein said of a 401(k) investment with a 0% fee. Of course, that doesn’t necessarily mean the firm’s plans are cheaper than others, he said.

Fisher’s fees are tiered based on plan size. So a plan with $2 million to $3 million pays a 1% fee, but one with $600,000 to $2 million pays a 1.25% fee, for example. That doesn’t include any fee paid to third parties, such as record keepers.

A study published this year by the Investment Company Institute and BrightScope Inc. shows 401(k) plans with $1 million to $10 million and at least 100 participants have an average plan cost of 1.14% on a participant-weighted basis.

Fisher offers four CITs, according to its most recent Form ADV: Foreign Equity, Emerging Markets Equity, All World Equity and U.S. Fixed Income. The filing indicates that plan assets “are generally invested in the Collective Funds.”

Mr. Gredys of Kidder Benefits Consultants sees a potential conflict in the use of proprietary funds.

“It can work, but basically the question is: How and when do you fire yourself [for underperformance]?” he said. “Not everybody is going to be the best all the time.”

Nathan Fisher pushes back against the question of conflict, though, saying the firm has no incentive to keep its funds in 401(k) lineups since it doesn’t earn revenue from the funds and has a fiduciary responsibility to the 401(k) plans.

“If we determined one of our funds was not suitable, and/or there was another fund more suitable, then we would replace our fund,” he said.