Stepping Up

How can retirement plan advisers determine what value they offer to a plan sponsor client? The value is defined both in what an adviser offers, and also in what others do and do not. As retirement plan advisers increasingly compete against other specialists—and not the traditional wealth management advisers—they must know what the competition is offering to compete in the retirement plan space, whether for clients, or new staff members, or center-of-influence relationships. Otherwise, how can you ever differentiate your practice or services?

The 2011 PLANADVISER Adviser Experience Survey of advisers who work with employer-sponsored retirement programs found them to be well-tenured in the area, even though some were not committed exclusively to retirement plans. For example, though more than half (60.1%) of those surveyed have been an adviser to employer-sponsored retirement plans for a decade or longer, more than one-third of those surveyed (38.5%) say that 50% or less of their assets under advisement represent retirement plans.

The target market for the respondent sampling was solidly mid-market; more than half (52.1%) focused on the $2 million to $20 million range. However, 20.4% target plans with $500,000 to $2 million in assets, and almost the same (19.9%) focus on plans with between $20 million and $75 million in plan assets.

When it comes to managing their practices, most (63.9%) are operating with a written business plan and an even larger percentage are revisiting or revising it on a regular basis (74.8% of advisers are doing so annually, semiannually, or even as frequently as quarterly).

Advisers are cautiously optimistic about the future. Asked about what will happen to their practices during the next 12 months, although nearly half (48.3%) expect their practice to remain at its current size, 37.8% of advisers say their practice will grow in the number of support staff, while 27.8%% expect it to grow in the number of advisers. Only 0.9% anticipate a decline in advisers.

As for exit strategies, most advisers (55.1%) say they have no exit strategy plans. However, of those that do have a plan, they are fairly evenly split between a plan to sell to partners or employees (30.5%) and those planning an IPO (30%). A handful of advisers say they will sell to a larger entity, participate in a roll-up strategy, or have some other plan (8.2%, 1.5%, and 4.4%, respectively).

One notable change in adviser firm affiliation was a decline in the percentage of advisers at the national full-service wirehouses, at 17.7% of advisers this year, down from around one-quarter of respondents in prior years. Advisers showed a stronger preference for independent (27.3%) or regional broker/dealers (52.0%). However, the categories of dually registered adviser (B/D and RIA) and the RIA continues to make up nearly one-fifth of the advisers each (15.1% of respondents are dually registered and 18.8% say they have their own RIA).

While there has been an increased examination of plan fees and fee disclosure in the retirement plan world, there hasn’t yet been a rush to move whole businesses over to the fee-based model. Most advisers surveyed still receive payments of asset-based fees (77.6%), and the median percent of revenue derived from such fees is 50%. The second most common fee type was commissions (62.4%), and the median revenue amount derived from that was also 50%. Only 15% of advisers said their fee schedules have changed in the past 12 months.

As for fee disclosure, the vast majority of advisers (75%) say they are prepared for the new 408(b)(2) regulations, while 12.1% say they are not, and 12.9% are not sure whether they are prepared. Once the 408(b)(2) regulations take effect, of advisers’ reactions to the rule, one-third of survey respondents (34.6%) said “it will be a big deal for some, not most” and the next-largest segment (26.4%) said it will be a big deal (another 17.5% said it will be a really big deal). Equal numbers (7.7%) said it either “won’t amount to much” or “it might have been a big deal, but we’ve had enough time to prepare.”

“How does my practice compare?” is a question that, at some point, passes through the mind of all successful advisers. Sometimes it isn’t enough to know what you are doing for clients. Knowing what your industry colleagues are presenting can help you stay competitive. –PA   

Methodology: In July 2011, approximately 9,400 PLANADVISER magazine subscribers were asked to respond to a 100-question survey, developed by the PLANADVISER editorial and research teams. From that, 383 complete responses were received from qualified plan advisers, with another 382 partial respondents. The questions included in the survey pertained to size and scope of the adviser’s qualified plan business, practice management, compensation, client service, and assessments of defined contribution providers and investment managers.