2016 PLANADVISER Practice Management Survey

What do retirement plan advisers view as their biggest challenges? Their greatest opportunities? What are the primary benefits they receive from custodians and broker/dealers (B/Ds)? The 2016 PLANADVISER Practice Benchmarking Survey of 613 retirement plan advisers shares insights into these and other key questions—and gives you a guidepost to see how you compare with your peers.

Although the industry often talks about moving away from focusing on just the “three Fs”—funds, fees and fiduciaries—two of those still lead many conversations. Among retirement practices of all sizes, the most frequently cited top concern is fee compression, selected by 34%. Rounding out advisers’ top three concerns are compliance/fiduciary issues and government regulation, tied at 33% each.

Adviser Ed Chairvolotti, chairman of Chairvolotti Financial in Winter Park, Florida, says worries over fee compression do not surprise him. “Most advisers are all selling the same commodity and, therefore, can’t differentiate their value,” he says.

Quinn Keeler, senior vice president of surveys and research at PLANADVISER’s parent company, Strategic Insight, in Stamford, Connecticut, agrees. “Plan sponsors are less willing to pay for services that have now become fully or partially commoditized through the disintermediation of the Internet, such as investment research,” she says. “Advisers have had to reduce their fees as many of these services are no longer seen as differentiators.”

This also comes with the current climate in which everyone is still evaluating the implications of the Department of Labor (DOL) fiduciary rule. When asked what they think will be the most significant growth area for their practice over the next 12 months, the biggest increase was seen in fiduciary services, cited by 46% of advisers—up from 36% last year.

The survey, fielded in September, showed a large increase in advisers serving as fiduciaries to plan sponsors and plan participants. The percentage of advisers acting as a fiduciary to participants increased to 53%, up from 44% in 2015. There was also a sizeable jump in the percentage of advisers acting as a 3(38) fiduciary to plans (to 60%, up from 56%) and as a 3(21) fiduciary (to 92%, up from 90%).

These developments make perfect sense to Virginia Taylor, principal with Taylor Financial Solutions in Belmont, California. Any retirement plan adviser who wants to “remain competitive” needs to provide these services, she says.

According to Chairvolotti, 3(38) and 3(21) fiduciary services have become “the minimum standard in the industry.”

Fees and Fee Disclosure
Advisers are also moving away from relying on industry forms—e.g., Form ADV or a 408(b)(2) disclosure statement—as the vehicle for revealing fees. Advisers are growing more apt to discuss them with plan sponsors in the annual review (81%, up from 75%), in their contract (79%, up from 76%) and in a fee disclosure statement (69%, up from 68%).

For all of the discussion about retirement plan advisers moving away from charging fees based on assets, to flat fees, 88% of advisers continue to charge a percentage based on assets, the same as in 2015, while 80% charge a flat fee, up only slightly from 78% in 2015. “I am still charging an asset-based fee because it is hard to switch over to calculating the time we spend on each client and determining that annual fee,” Taylor says.

Chairvolotti concurs: “As over 90% of all retirement plans in the U.S. are under $5 million, and 90% of all companies have fewer than 20 employees, asset-based fees will continue to be passed on to the participants.”

Home Offices and Affiliations
As of September, the retirement plan community looked relatively similar to last year: 24% of advisers are with a national full-service wirehouse, and 24% are dually registered as a registered investment adviser (RIA) and a broker/dealer, on par with last year’s findings. However, 22% of advisers are aligned with an independent B/D, up from 17% in 2015.

Per the advisers surveyed, it is clear B/Ds offer advisers a plethora of benefits. “Fee compression is happening everywhere, not just with advisers’ fees but among organizations that serve advisers themselves, such as broker/dealers,” Keeler says. “Therefore, it should come as no surprise that providers of all types are expanding their value propositions.”

For advisers, the top two such B/D services are compliance oversight (cited by 79% of advisers) and technology/information technology (IT) support (cited by 58%). But in terms of which services saw the biggest growth in adviser use this year, these would be lead generation/referrals (39%, up from 14%), participant education (42%, up from 32%) and marketing support (46%, up from 38%). In fact, Taylor, who has doubled her assets under advisement (AUA) in the past five years—and expects AUA to double again in the next three—gives much credit for the growth to her B/D and the advantages she says that affiliation provides.

Considering this, and given the expansion of services offered, it may come as a surprise than only 24% of advisers rate their custodian as excellent and 44% rate their B/D as excellent.

Defining Plan Success
The top three success measures that advisers use for their plan sponsor clients are participation rates (77%), deferral rates (70%) and competitive benchmarks of the plan design (65%). Only 50% calculate the percentage of participants on track to meet their retirement income replacement goals. Chairvolotti believes that advisers who rely mostly on participation rates and deferral rates offer their plan sponsor clients “a false narrative. We need to have the tough conversations with our clients,” he says. “The only success in a retirement plan is an effective income replacement ratio for each participant.”

Taylor views these success measures slightly differently. “Increasing participation and deferral rates is a noble beginning, but we do need to put more energy toward retirement readiness,” she says. These metrics may be why only 22% of advisers are confident and 4% very confident that the majority of their plan sponsors’ participants will achieve their retirement income goals by age 65.

Methodology: In September, approximately 15,000 subscribers to PLANADVISER were asked to respond to a 37-question survey, developed by the PLANADVISER editorial and research teams. Survey questions pertained to size and scope of the advisers’ qualified plan business, practice management, compensation and client services, as well as their assessments of investment managers, mutual funds and defined contribution (DC) providers. The provider assessment results appeared in the Retirement Plan Adviser Survey in the September/October issue. At the close of the survey, 613 complete responses had been received from retirement plan advisers. 2016 results for each category are rounded to the nearest percentage; the year-over-year change column is calculated based on unrounded actual results. For more information and for additional research available, please contact surveys@strategic-i.com.