2014
Practice Benchmarking Survey

The 2014 PLANADVISER Practice Benchmarking Survey

Retirement plan advisory practices are service businesses, making it critical for you to have a firm grasp on how your particular plan sponsor and participant offerings, growth strategies, fees and concerns measure up against your competitors’. The 2014 PLANADVISER Practice Benchmarking Survey, our eighth, provides you with detailed insight into the inner workings of 623 of your colleagues’ businesses, to help you expertly steer your own toward success.

Respondents to this year’s survey run large and efficient practices. The vast majority (61.1%) have more than $100 million in assets under advisement (AUA), and 19.4% are in the $20 million-plus to less than $100 million range. Not surprisingly, given the sizeable AUA of these advisers, 19.7% have 21 to 40 clients, while 17.5% serve 11 to 20. Also, nearly three-quarters (72%) work in teams—46% run a team practice in one location, and 26% maintain multiple office locations.

Just like last year, the majority are independent, with equal numbers (24%) either affiliated with an independent broker/dealer (B/D) or running as a registered investment adviser (RIA). Slightly fewer responding advisers are dually registered as a B/D and an RIA (16%), although this category is down from the 19% who said they held both designations in 2013. Only 15% are affiliated with a national, full-service wirehouse, a mere 9% with an insurance firm or bank B/D, and only 6% with a regional B/D. While all of these figures are either exactly on par with or slightly up from 2013, the greatest change from the 2012 survey is the increasing popularity of RIAs: Compare the 24% of RIAs in the 2014 survey with the 19.7% in 2012.

Interestingly, considering the constant industry focus on fiduciary responsibilities, the proportions of advisers who do and who do not offer fiduciary services both increased. Slightly more retirement plan advisers say they act as a fiduciary to plan participants—34%, up from 33% in 2013. Still, one-quarter (24%) of advisers do not offer any type of fiduciary service, up from 22% in 2013. This could reflect an increase in 3(38) fiduciary providers, allowing advisers to focus on plan design and participant education while their plan sponsors get fiduciary help elsewhere. Among those advisers who do serve as fiduciaries, 3(21) fiduciary services are most common—59%, up from 57%—followed by 3(38) fiduciary services—27%, up from 23%. As to whether they provide 3(16) fiduciary services—a new area of outsourcing in the industry—3% answered in the affirmative.

Practice Concerns

As for their concerns and expectations, respondents
this year cited far more worries—and at far higher levels—than they did in 2013, suggesting that they find it more challenging to distinguish themselves in the retirement plan industry, offer unique services and develop a distinctive brand. Forty-three percent said adding new clients is their top concern, up markedly from 29.8% in 2013. Along these lines, 12% worry about client retention, a sizeable jump from 2.9% in 2013. These client-related fears make sense, as advisers’ second-greatest concern is their competition/practice differentiation, cited by 26%, up from a mere 2.7% in 2013.

Third on their list is compliance/fiduciary issues, cited by 25%, way up from 6.3% last year. Other anxieties: government regulation (cited by 23%), fee compression (23%), marketing (21%), practice management (19%) and profitability (16%). Coming in last is fee disclosure/transparency, named by 4%—perhaps these advisers still feel the ramifications of the 2012 Department of Labor (DOL) 408(b)(2) fee disclosure rule.

As to how advisers charge for their qualified plan services, fees based on assets remains the method for the majority (73.3%), although this is down from 76.4% in 2013. The next most common method is via commissions/12b-1 fees—55.8%, up from 51.4%. There continues to be a push toward fee transparency and equalization. Hard-dollar or flat fees come in as the third most common way to charge clients (51.1%, up from 50.3%), followed by Employee Retirement Income Security Act (ERISA) budget/ERISA reimbursable (30.7%, down from 31.5%), per project (24.8%, up from 21.3%) and per participant (9.9%, up slightly from 9.8%).

How do advisers disclose their fees to their plan sponsor clients? The majority are forthright: Seventy-seven percent divulge them quite clearly on fee disclosure statements. The next most common methods are: annual reviews (66%), contracts (66%), Form ADV (39%) and requests for proposals (RFPs) (22%).

Advisers deliver a wide array of services for the fees they receive, most of which relate to the plan investments. Tied as the No. 1 service are attending plan committee meetings and ongoing investment monitoring (94% each), followed by manager searches/fund replacements (91%) and investment policy statement (IPS) design (90%). Education and plan design consume the next six places, starting with: ongoing employee group meetings (87%), benchmarking defined contribution (DC) plan providers (86%), enrollment meetings (85%), compliance reviews (84%), DC plan design consulting (84%) and one-on-one employee meetings (78%).

Services that advisers increasingly offered this year, in terms of greatest change in percentage, were: private wealth/highly compensated employee (HCE) services, nonqualified plan design, ongoing employee group meetings, and individual participant investment advice. This indicates that advisers are more engaged in serving HCEs and offering education and advice. Asked whether they are personally involved in evaluating and recommending fund choices in an advisory capacity with their qualified plan clients, 84% said yes, up from 81% in 2013.

Almost half of the advisers (48%) cited 401(k)s when asked to predict the most significant driver of growth for their practice over the next 12 months. Other responses were: referrals (28%), fiduciary services (28%), participant advice/education (26%), strategic partnerships (26%), retirement income discussions (18%), plan/fee benchmarking (18%) and rollovers (18%).

In terms of the broker/dealers and custodians they work with, the most widely used B/D is LPL Financial, named by 18.0%. Every other broker/dealer received less than 6% of the count, showing just how much diversity there is in affiliations. Advisers appear to be considerably happy with their B/Ds: Nearly half (45%) rate them as “good,” with one-third (32%) saying “excellent.” Only 18% said they were merely “satisfactory” and 5%, “poor.”

There was less diversity among custodians, with the two most popular custodians for RIAs being Schwab (28%) and Fidelity National Financial Services (22%), accounting for half of all respondents.

Practice Benchmarking Survey Methodology

In October 2014, approximately 15,000 adviser subscribers to PLANADVISER were asked to respond to a 42-question survey, developed by the PLANADVISER editorial and research teams. Survey questions pertained to size and scope of the adviser’s qualified plan business, practice management, compensation and client service, and his/her assessments of investment managers, mutual funds and defined contribution (DC) providers. The provider assessment results appear in the Retirement Plan Adviser Survey in this issue. At the close of the survey, 623 complete responses had been received from retirement plan advisers.

For more information and for additional research available, please contact surveys@assetinternational.com

Art by Umme Alam