SAN FRANCISCO — After a year of frantic meetings with ex-clients, Thomas Pignone finally is breathing easier as he rebuilds his firm.
The partner of Turning Point Benefit Group in New Market, Md., woke up one day last June to find that 30 years’ worth of business had evaporated.
Mr. Pignone had 600 accounts with $30 million wrested from his control when the Montgomery County Public Schools in Maryland replaced the now-bankrupt bank, QUADS Trust Co. in Frederick, he was using to hold custody of those 403(b) accounts. Those accounts generated an automatic asset flow of about $200,000 every two weeks.
“We were basically out of business,” Mr. Pignone said.
What he experienced was the nightmare scenario that many financial advisers envisioned when the
Internal Revenue Service began to discuss rule changes for 403(b) plans years ago. Under the proposed rule changes, school systems, municipalities and non-profit organizations that oversee the employees that participate in these pension programs are going to be held much more accountable to them.
Although the old rules for 403(b) plans still are in place, many schools — in anticipation of the new rules — are slashing the number of plan providers that can sell to their employees to lessen their burden of oversight. The Montgomery County Public Schools in Rockville, for instance, reduced its approved vendor list to eight firms, from 14, according to Mr. Pignone.
Many advisers and broker-dealers that built their businesses on easy access have adapted to the market.
“It’s making it much more challenging for firms that only focused on 403(b) to maintain access to clients,” said Kevin Twohy, vice president of partner development for PlanMember Securities Corp. in Carpinteria, Calif.
Over the past five years, the percentage of the broker-dealer’s new business that comes from 403(b)-related activities has dropped to 10%, from 66%.
Regardless, the 403(b) market actually may be offering more opportunity for advisers, according to Bruce Corcoran, senior vice president of national market education for
AIG Valic in Houston, a subsidiary of New York-based American International Group Inc. “We see opportunity for advisers to be the ones servicing the plan sponsors and educating the plan participants” under the new regulations, he said.
It’s a good time to pursue the 403(b) market, according to Jefferson D. McBriety, a Corona, Calif.-based independent registered representative with PlanMember who manages $21 million. Just 30% of his assets are 403(b) related, but he plans to raise that to 70% in coming years.
The brighter light being shined by the IRS will help. “We’re going to blow out some of the insurance jockeys who meet a teacher and say, ‘Send $300 a month into the black hole,’” Mr. McBriety said.
But Joe Del Guidice, a financial adviser in Tampa, Fla., with
AIG Valic, said that he continues to build his practice with products that include variable annuities by emphasizing
financial planning.
New regulations aren’t a clear win or loss for him, he added.
Other independent reps, such as Kevin Albritton, president of Albritton Financial Services Inc. of St. Louis, which manages $50 million, have fortified their defenses against 403(b) regulation changes. Mr. Albritton, who reduced 403(b) plans to 10%, from 50%, of his business during the past decade, does business only with plan sponsors that offer him an exclusive arrangement, he said.
“Now if there’s a change in the 403(b) regulations, it won’t make a dime of difference to my practice,” Mr. Albritton said.
Daniel Stowe, president of Stowe Financial and Insurance Services of Goleta, Calif., which manages $17 million, said he also has been happy to steer his business away from going after individual teachers in 403(b) plans. “Now I’m looking at 401(k) [plans] or larger [403(b)] plans where we can get 75 people” at a crack, he said.
That essentially is the same tactic that Mr. Pignone is starting to employ now that he has reclaimed 400 of those lost accounts and has rebuilt his assets under management to $45 million. Much of the past year was a scramble, working 20-hour days to see his lost clients and talk them back into the fold.
Besides regaining the clients and their assets, he regained the asset flow from the Montgomery County teachers by making deals with providers who retained access to those teachers.
