Diversified white paper advances a vision for retirement plan practices
The future trends identified in this report emanate from two developments affecting the environment
in which Professional Retirement Plan Advisors operate:
- Mandated fee disclosures leading to fee compressions of varying levels for all advisors, particularly those focused on wealth management, and
- Healthcare reform leading some health and welfare brokers/consultants to diversify their practices into retirement benefits.
DOWNLOAD the whitepaper: Advisor Practices of the Future: 2012-2015
Survey results portray a profession that will befundamentally transformed over the next three years, its market share increasing to 40% from 25% in the $10 million to $500 million market segment. By the end of 2015, the average practice will have grown by 50% in staff, gross revenue, and
net revenue, and most practices will have become national in scope. Growth will be fueled by the entry
of health and welfare as well as wealth management advisors who opt to specialize in retirement plans
in a strategic move to protect their practice, while others not specialized in retirement plans will be
driven out of the business. The C-suite and the Board of Directors of client firms will be increasingly
involved in decisions, tempering the impact of lead generation tools and services.
By the end of 2015 plan sponsor concerns for business continuity will have led many advisor practices to establish succession plans involving buy-sell agreements. Over 40% of practices succeeding to new owners of the next three years will involve a strategic buyer or a roll-up firm. For this reason, we project that many buy-sell agreements will name a strategic partner or roll-up firm as the buyout partner. Mergers and acquisitions among advisor firms will be on the rise, contributing to a general increase in practice staff and revenue.
Evolution of planning practices
Organizational structures will evolve. Seeking efficiency gains, many firms will centralize functions
such as drafting advisor search RFP responses, drafting service provider RFP questionnaires, and
producing periodic investment and plan review reports. The final steps in the process—such as the
production of slide presentations—will continue to be handled locally, however. Broker/dealer firms,
Registered Investment Advisors, and benefits consultants may seek slightly different organization
and production processes.
Advisors agree that ERISA 3(21) fiduciary status will be needed in order to receive compensation. Greater plan sponsor reliance on retainer compensation is expected to compress fees at the case level, but also enhance the competitiveness of Professional Retirement Plan Advisors and increase overall revenue for practices. Retainer compensation will protect advisors from down-market risk, raise the
need for fee negotiation, and provide the opportunity for multi-year contract guarantees. In particular,
plan sponsors engaging advisors for what could be an expensive search will consider amortizing fees
over several years. Retainer compensation will protect advisors from down-market risk, raise the
need for fee negotiation, and provide the opportunity for multi-year contract guarantees. In particular,
plan sponsors engaging advisors for what could be an expensive search will consider amortizing fees
over several years. Plan sponsors who prefer a fee-for-service model will remain a minority- albeit a growing one.
As investment services become a commodity and plan sponsors seek to reduce the portion of plan
costs covered by asset-based charges, low-cost investment options (zero revenue-share actively managed funds and passive funds) are expected to become more prevalent in fund arrays. In time, advisors will spend less time and effort on investment reviews.
Increasingly, sponsors will shift attention away from funds, fees, and fiduciary functions, and will
instead focus on participant outcomes. Advisors will spend more time discussing tools and resources that enhance the retirement readiness of participants. Advisors will also focus on running group employee meetings, particularly those dealing with retirement income solutions and participant advice. More practices will be involved in delivering participant advice either directly or in partnership with other firms. However, offering participant advice will not be a viable strategy to halt fee compression.
Advisors with expertise in merger and acquisition consulting may be able to reap increased revenue opportunities. However, the fact that transitions such as mergers, acquisitions, and divestitures affect only a minority of plan sponsors in any given year may impair advisors’ overall ability to fully capitalize on the potential.
DOWNLOAD the whitepaper: Advisor Practices of the Future: 2012-2015
