Advisers specializing in the retirement-plan business are engaged in battle on multiple fronts — and none of the conflicts have easy answers.
Fifteen years ago, when a majority of retail 401(k) plans were sold direct — not through intermediaries — plan advisers struggled to educate companies about the role they played compared with the record keeper. Today, almost 90% of companies that have between 50 and 10,000 employees use an adviser, according to research from Fidelity Investments, but their role is still not clear to plan sponsors.
Why? Because frequent turnover of the people in charge of the 401(k) who receive very little to no training. Senior management might be more stable, but the defined-contribution plan is not their top priority — it may not even rank among their top 10.
Though specialist 401(k) advisers have been able to show value with current clients and hold their fees steady over the last few years, they have also had to change their fee structure from 100% asset-based to fixed fees and a-la-carte pricing, positioning themselves as an "outsourced chief retirement officer."
And although record-keeper fees have stabilized over the past few years, costs continue to rise, especially for technology and cybersecurity. As a result, providers are looking for additional revenue, whether that comes from creating or selling proprietary products, extracting larger payments for shelf space from asset managers, or providing participant services, all approaches that put them in direct conflict with plan advisers. Record keepers are getting more aggressive about rollovers and participant advice, as well as offering financial wellness tools.
Specialists also have to fend off a myriad of less experienced advisers who call their clients to offer what they claim are comparable services for a much lower fee. And plan sponsors have become particularly sensitive to fees, as evidenced by the move to index funds.
In addition, specialist retirement plan advisers who are part of large aggregators can offer lower fees because they have scale and have already migrated to a fixed-fee, a-la-carte pricing model. Some aggregators' fees to offer participant advice dwarf plan-level fees, making their plan fees for a new client appear absurdly low relative to other advisers.
So most advisers who are not part of a large aggregator are fighting multiple battles:
• Educating plan sponsors about their role versus record keepers.
• Showing value versus less experienced advisers willing to charge less.
• Changing to a flat fee, a-la-carte pricing model while offering other participant services.
• Fending off record keepers by forming deeper partnerships with a few.
All of these steps are tall orders for most retirement plan advisers. It used to be easier for specialists to distinguish themselves just by being willing to act as a fiduciary. That's no longer the case, with the majority of DC plan advisers either acting as a fiduciary or partnering with a third party to offer fiduciary services.
401(k) advisers might want to leverage the current AT&T slogan: "Just OK is not OK." That implies that plan sponsors should care more about the quality of the service they are receiving than the cost.
By extension, that also means plan sponsors will need to truly understand the role advisers play compared to record keepers to fully appreciate the advisers who add value to them, their company and their employees.