Are You an Adviser or Consultant?

Think that distinction doesn’t matter? Just ask your service provider partners.

Art by Woshibai


During a recent, wide-ranging discussion with PLANADVISER, Edmund Murphy III, president and CEO of Empower Retirement, said the advisory industry’s ongoing merger and acquisition (M&A) rush brings to mind a broader trend that has seen the traditional divisions between “advisers” and “consultants” seemingly break down.

Murphy said it may seem like a mere linguistic exercise whether a financial professional identifies as an “adviser” or “consultant”—and this is true in a sense when it comes to what financial professionals choose to call themselves. In fact, many firms use the terms more or less interchangeably, either based on their view of a given client or prospect or on the specific service level a client is considering. Similarly, clients will often misunderstand or entirely overlook the meaning of the two terms.

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What matters much more, Murphy explained, is how the financial professional’s service provider partners—the recordkeepers, asset managers, broker/dealers, etc.—classify them. In his experience, most service providers continue to draw a hard line between the advisory and consultancy communities. Practically speaking, this distinction has an effect on the pricing, service offerings and overall relationship that develops between a financial services firm and its business partners.

An Intermediated Marketplace

“Even in 2020, there is still not much uniformity from firm to firm in terms of how financial professionals’ strategic service partners look at the ‘intermediary’ market,” Murphy explained. “Oftentimes, when I’m in front of a group of intermediaries we would internally call ‘advisers focused on the smaller market,’ I will take the liberty of calling them ‘consultants,’ frankly because I think they like that term better in some cases, and we don’t necessarily feel a big need to differentiate them as an external thing.”

Internally, Murphy noted, the distinction matters very much.

“We do make a distinction between how we serve advisers or consultants, and it’s an important one,” Murphy said. “Being a consultant or an adviser, in our view, has to do with how the group is organized and what services and solutions they can bring to bear for their customer base. Consultants generally will be providing a more holistic service set, and our support services have to be cognizant of that. It’s not that one is receiving better services, they are just different.”

As a general rule of thumb, “consultants” in Empower’s view are typically working with larger and more sophisticated corporate clients, both on retirement planning issues but also on other payroll or benefits strategies. Notably, Murphy explained, a “401(k) consultant” or a “retirement plan consultant” will likely be drawing on other experts within a firm when it comes to helping their client address holistic benefits strategies.

“Advisers, on the other hand, have a more limited service set that is focused more squarely on the retirement plan or perhaps executive compensation,” Murphy said. “You generally wouldn’t see these ‘advisory’ firms being retained by a Boeing or an Apple to map out their overall benefit strategy. Advisers have some very large clients, to be sure, but the biggest companies still think about using ‘consultants’ for their benefits. And then, of course, there is the discussion about being an ‘investment consultant’ versus being an ‘administrative consultant.’”

Consultants vs. Advisers

Murphy noted another trend that has emerged in recent years that service providers such as Empower are tracking closely: the development of direct competition between firms that service providers would classify differently as consultants and advisers.

“Increasingly, we see there are some ‘consultants’ that will go down market and provide more limited services in an ‘adviser’ style capacity,” he said. “So, this discussion matters for registered investment advisers [RIAs] in their ongoing competition for new business.”

This trend is in fact reflected in the 2020 PLANSPONOR Plan Sponsor of the Year listings. In the same plan size category, there are plan sponsors served by the likes of NEPC, traditionally viewed as a consultancy style firm, and Cammack Retirement Group, which has been viewed more as an advisory firm. Murphy said it will become more common for “advisers” and “consultants” to find themselves competing for the same business, and each model will have its own appeals for potential clients.

Accelerating this trend is the entrance of the likes of HUB International and OneDigital into the retirement plan advisory business. Such developments are clearly aimed, among various other strategic goals, at giving well-established advisory firms the resources they need to provide more holistic services.

Indeed, in a conversation last year with PLANADVISER, Joe DeNoyior, who prior to HUB’s acquisition of his firm was CEO of Washington Financial, said the backing of HUB would allow his firm to deliver “a wider and more holistic scope of services—while enjoying a more efficient back-office process.” He said he and his colleagues chose HUB because they are focused on where plan sponsors are going from a total employee benefits approach. The convergence of health and wealth is here, he said.

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