As competition intensifies to capture the 401(k) and other retirement plan business of small and midsize companies, wirehouses increasingly are allowing representatives who specialize in the niche to act as fiduciaries.
“If you won't sign off as a fiduciary, it's a major red flag these days,” said Bo Bohanon, a retirement plan manager at St. Petersburg, Fla.-based Raymond James & Associates Inc. “It means you're putting your own interests ahead of a client's, and that won't sit well with any plan sponsor.”
The number of reps who serve in a fiduciary capacity varies greatly by wirehouse. UBS Financial Services now permits more than 300 reps to be fiduciaries, while St. Louis-based Wells Fargo Advisors and New York-based Morgan Stanley have 50 and 40 reps, respectively, who act in that role according to officials at the firms.
Officials at New York-based Smith Barney also noted that some of their brokers act as fiduciaries to retirement plans, but they didn't specify the number of reps permitted to do so.
A spokeswoman for New York-based Merrill Lynch & Co. Inc. declined to comment.
Although fiduciary reps are a very small fraction of the wirehouse head count, the market that they are trying to serve is growing.
Nearly 75% of 401(k) plans with less than $50 million in assets use an investment adviser — up from just 50% in 2003, according to data from Boston-based
Fidelity Investments, which expects the market to continue growing at a significant clip.
“We were consistently hearing and seeing clients who were asking us to sign off as fiduciaries for some of the basic services they're looking for from an adviser,” said Patrick Oberlander, executive director and head of the corporate-retirement-plan business at UBS in New York.
These services typically include investment consulting and investor education, as well as reviews and searches for retirement plan providers.
UBS began a program last year that allows reps to act as fiduciaries once they have completed an appropriate level of training and received specific certifications, such as the chartered retirement plans specialist designation from the College of Financial Planning in Greenwood Village, Colo.
“Setting up this separate group for retirement plan specialists has allowed us to compete with independent and regional firms on every level,” said Mr. Oberlander, who noted that the group boasts about 325 advisers who manage more than $2.5 billion in retirement plan assets, with another $1.5 billion in assets in its pipeline.
Wayne Morris, director of institutional consulting at Wells Fargo Advisors, echoed that sentiment.
“Whether you acknowledge it or not, you're acting in a fiduciary role to these clients,” he said. “We just decided we would be more competitive if we faced the facts head-on and put ourselves down as fiduciaries on the contract.”
Smith Barney subsidiary Citi Institutional Consulting, which has allowed consultants to act as fiduciaries to large retirement plans for years, began allowing reps to act as fiduciaries to smaller plans about two years ago when demand for advisers began to become apparent.
That was shortly after enactment of the Pension Protection Act of 2006, which encouraged plan sponsors to hire outside investment advisers.
Smith Barney requires its fiduciary reps to complete specific education requirements, have experience working with retirement plans and hold a designation as a retirement plan expert, said Tom McAuliffe, senior vice president of Citi Institutional Consulting.
“There's a lot of confusion out there in the market about whether you're a broker or an adviser,” he said. “It's critical to differentiate.”
Perhaps the simplest way to differentiate could be to tweak the compensation structure of the reps who work with retirement plan clients, industry observers said.
“If you are offering advice, and that advice has the ability to impact the way you are paid by a retirement plan, there's a clear potential conflict there,” said Jason Roberts, partner at Los Angeles-based law firm Reish Luftman Reicher & Cohen.
To that end, Mr. Oberlander noted that UBS reps are now paid either a flat fee or a basis-point fee for the services that they provide for their retirement plan clients.
Unless reps clearly identify themselves as fiduciaries, “it will be incredibly challenging to go after any new retirement plan business,” said Steve Wilt, a retirement plan adviser who recently left Merrill Lynch after 20 years to join Raleigh, N.C.-based Captrust Financial Advisors.
“Retirement plans want true advisers now,” he said. “They want more than just a broker, they need someone who is willing to put some skin in the game right alongside of them.”
E-mail Mark Bruno at [email protected].
