Survival of the Fittest

Five years ago, it was rare for Charles Schwab Retirement Business Services to know the advisers who were attached to its retirement plan clients, says Debbie Pritchard, Vice President of Business Development for Charles Schwab Retirement Business Services. If Schwab was meeting a new retirement plan client for the first time, she says, it was unusual for the retirement plan’s adviser to be at the meeting. Most of the contact Schwab had with the plan, she says, was through the recordkeeper.

Things, however, changed over the last five years. Now, says Pritchard, Schwab knows the advisers attached to their client retirement plans and the company is very involved with those advisers in servicing the plans. Furthermore, she says, the retirement plan adviser is almost always at meetings it holds with the retirement plan client. “We’re working much more closely together,” she says.

Meeting advisers was not the only thing that changed in the way Schwab does business. Historically, the business focus at Schwab on the retirement side was on the independent recordkeeper, says Pritchard. However, she says, a few years ago, the firm came to the realization that a) advisers are in more direct contact with plan sponsors, and b) Schwab already had great relations with advisers on the wealth side. Thus, she says, in the past few years, a lot of the work at Schwab has focused on developing products and services for the retirement plan adviser space.

Schwab is not alone. In the last few years, there has been a real shift in how retirement plan advisers do business, says Pritchard, leading to changes by retirement plan custodians. Traditionally, the retirement space was product-driven, with advisers providing proprietary products, says Mark Tibergien, Chief Executive Officer of Pershing Advisor Solutions. Now, however, plan sponsor clients are saying they want more options, and the focus of advisers has become more of a client advocate.

Advisers, says Tibergien, are recognizing the changing nature of the business and making a shift. Retirement plan advisers increasingly are becoming registered investment advisers (RIAs) and moving to a fee-driven model of business. It’s a significant trend, says Tibergien, driven in large part by the movement to the fiduciary standard, and how advisers now can be compensated and relate to clients.

The industry will see more retirement plan advisers becoming RIAs in coming years because of new rules requiring them to charge level fees, says Skip Schweiss, President, TD Ameritrade Trust Company. Charging level fees, he says, is difficult if the adviser is not an RIA.

Custodians and vendors have taken note of the trend and are increasing the products and services offered to retirement plan RIAs.   

It makes business sense to provide these services. While there are currently approximately 310,000 retirement professionals (those who advise on 401(k)-type, pension, and profit sharing plans, or those who specialize in advising about pre-retirement and retirement) in the United States, that number is down from 10 years ago, says Tibergien. However, he notes, the one segment that is seeing an increase in numbers are firms forming RIAs. The buy side of the financial services industry is now 15% of the industry, he says, and growing.

Additionally, on the Pershing platform, roughly 35% of assets are now advisory, says Tibergien, and the biggest driver for the growth is that many independent broker/dealers are switching to support advisers in their business model, and it will continue to grow, he says. According to a Pershing study, there is a need for 9,000 more retirement plan advisers in the RIA space. “Pershing is readying itself to play an increasing role in the employer plan space as it relates to registered investment advisers playing a bigger role in that space,” says Robert Cirrotti, Head of Retirement and Long Term Savings Products, Pershing LLC.

Areas of Expertise 

To accommodate the new business model, custodians and other retirement plan service providers are designing and offering a multitude of new services geared toward retirement plan RIAs.

In the past, programs for retirement plan advisers generally revolved around sales training for selling packaged retirement products, says Schweiss. The space, however, has been moving toward unbundled products. So now, he says, retirement plan advisers need to find out how to locate and evaluate recordkeepers, third-party administrators, and other service providers. To help, many providers are offering advisers referral services.

Education is also a major theme of new service offerings. Retirement plan advisers want information about new rules and regulations, so providing articles written for advisers about current legal updates and how they could affect their practice is an important service offering, says Schweiss. TD Ameritrade now offers 401K University—a four-part seminar that advisers can take to educate themselves about how to be a fiduciary adviser to retirement plans, and how to charge for services, among other topics, says Schweiss. TD Ameritrade also educates 401(k) advisers about how to start, grow, and manage their retirement plan practices. Another focus is giving advisers the tools and skills needed to present unbundled alternatives to clients currently in bundled products, he says.

TD Ameritrade also is creating educational opportunities for advisers at events around the country, says Schweiss. At its National Conference in February 2011, there was an entire track for advisers about how new retirement plan rules would impact business, he says; it was so popular, the company had to turn people away. To accommodate the demand, he says, TD Ameritrade began offering regional workshops in June.

Custodians also are recognizing that advisers are small-business owners, says Tibergien. So, custodians such as Pershing have to offer a fairly robust practice management system that can assist RIAs with 1) business growth; ­2) human capital, i.e., how to recruit, retain, and incentivize; 3) risk management, which includes compliance and managing people, clients, and financial risk; and 4) operating efficiency. Operating efficiency is particularly important these days, he says, because margins are getting squeezed and the market is not giving advisers a lift, so they have to operate more smartly. “They have to become more efficient in their business operation,” he says of advisers.

Education about how to use technology is also important, says Tibergien. In the past, he notes, technology was used primarily to watch the market; now, it is being used to develop business. “Advisers have to know how to use technology to manage their contacts better,” he says.

Human Capital and Other Tools

Schwab also has developed a team that works with advisers on the retirement side, says Pritchard, to help to match advisers with recordkeepers. Schwab works with more than 150 independent recordkeepers that have connectivity into the system, so it can help advisers find the right fit for them to help them with recordkeeping, plan design, etc. Having a dedicated team for advisers has been a real selling point, she says.

Additionally, Schwab has been working on creating products and services that enable retirement plan RIAs to better service clients. For example, she says, advisers want data and information about plans including industry trends, benchmarking tools, and industry data. This is because RIAs’ roles are becoming more consultative. “It’s not just about investment-only anymore,” Pritchard says. The company also is developing new tools for investment policy statements and ongoing monitoring of investments, and planning to get involved in vendor searches, she adds. Another product helps advisers with request for proposal (RFP) responses.

Schwab Adviser Portfolios gives advisers the ability to set up and mange portfolios, says Pritchard. It’s great for advisers who work with defined contribution plans with managed accounts, she says. Another new Schwab offering is a product for plans with self-directed brokerage accounts, she says. A new trend, she says, is to have advisers work with high-net-worth individuals within the retirement plan to manage their 401(k) accounts, and this product allows them to do that.

TD Ameritrade Institutional’s unbundled solutions now offer RIAs the TPA Network, which helps advisers identify a third-party administrator/recordkeeper firm that meets their business needs. It also offers the Trust Business Development Team that helps advisers working with TD Ameritrade to grow their businesses by uncovering opportunities for advisers and TPAs. Like Schwab, TD Ameritrade also gives advisers the ability to manage self-directed brokerage accounts within a retirement plan through Veo, TD Ameritrade Institutional’s adviser trading platform.

Pershing has an employer plan solution for advisers on its platform, says Cirrotti. It’s an all-brokerage-based solution “for small-business owners and the advisers working with them,” he says. It’s geared toward the micro end of the market, for businesses with fewer than 20 participants in their retirement plan. The Pershing platform also has a full suite of options available for RIAs managing assets in cash balance or defined benefit plans.

Individual Connections

Additionally, Pershing now offers solutions for helping RIAs understand the crossover between the small-business owner as a professional side and as an individual to make sure they are maximizing opportunities, says Cirrotti. By helping small-business owners with a holistic approach to their retirement needs, he says, advisers can increase their business. Pershing also can help advisers explain to clients the downside scenarios to their income potential. This builds trust with the client base, says Cirrotti.