Finding a Mate

Bruce Harrington is the new guy on the block at LPL Financial in Boston. Harrington, who arrived at the independent broker/dealer late last year, after several years with MFS and several more as a wealth management consultant with a knack (and a “passion”) for retirement planning, has just one goal: supporting advisers who work with retirement plans.

LPL’s decision to assign Harrington to the newly created role of Vice President for Retirement and Annuities has much to say about the evolution of the broker/dealer (B/D) space—and its failure, in many cases, to offer sufficient and professional practice management, compliance, and other services to advisers who focus on working with qualified plans. This adviser group may be a relatively small number for most broker/dealers, but its ranks are growing and its needs multiplying along with the assets it represents.

Broker/dealers tend to lump retirement plan specialists in with wealth managers catering to high-net-worth (HNW) clientele, observes Tom Modestino, a senior analyst with Cerulli Associates in Boston, who focuses on retirement plans and retirement income. That trend manifests itself in any number of ways—even in the monthly meetings that are geared to selling and supporting the HNW advice-giver rather than those addressing plan statements, retirement platforms, and advice issues.

One broker/dealer dedicated to serving these advisers is NRP Financial, a unit of the adviser network National Retirement Partners, billed as a full-service broker/dealer and financial advisory practice designed specifically “for top-level representatives looking for independence and a community of other great producers.” These days, the consortium of 270 advisers with offices in 117 cities nationwide gets 70% of its business from retirement plans, and the other 30% is wealth management.

“A lot of other B/Ds don’t get it when it comes to retirement plans,” says NRP Financial CEO Cliff Oberlin, while NRP’s network of advisers receives the appropriate “tools and services,’ and compliance information.

At time when too many plan participants have been doing the “opposite” of what they should be doing with their equity investments—selling low and buying high—­Modestino says; when participants need to learn to focus on the difference between wealth accumulation and “decumulation” phases of life; and when fee transparency regulation or legislation seems inevitable for plan providers, the role of the plan adviser as a fiduciary has never been more critical. Unfortunately, at most broker/dealers, “The guidance has been missing,” he says.

“In our case, we are more than platforms,” says Oberlin. “We are providing expertise. A lot of large B/Ds we compete with do a lot of other things as well, but we put a lot of effort into the retirement plan space.”

Fee Disclosure

One trend that most B/Ds and advisers seem to agree will continue to resonate in the retirement plan space: fee disclosure. Although only one part of the Department of Labor’s three-part fee disclosure package made it into law, the issues still loom large on the horizon. Proposed changes to ERISA 408(b)(2) may well have the effect of leveling plan provider fees and helping plan sponsors differentiate among advisers, as well.

Harrington seems to be doing his part to help LPL advisers with the issues listed above. The 408(b)(2) regulations require service providers to disclose in writing just what services they provide to qualified retirement plan sponsors, and what sorts of compensation they are receiving. The regulations were tabled around the time of President Obama’s inauguration but could show up in one form or another in the next month or so, says the LPL official. “Advisers are concerned about that, but I’ve had opportunities to speak to them. We have a couple hundred expert level 401(k) people and they think it’s a very positive thing that will help them to distinguish themselves,” Harrington says.

Embracing New Models

Meanwhile, he says that, while the regulation raises the age-old question of who is a plan fiduciary, LPL now is offering a Retirement Plan Consulting (RPC) program that it runs through its corporate RIA (registered investment adviser). Through that program, an adviser can sign on as a plan-level fiduciary charging a single hard-dollar fee rather than an asset-based fee or commission.

That program also may support the ability of LPL advisers to offer face-to-face, participant-level advice—something that a growing number of advisers would like to do and something participants sorely need, according to Harrington. Though it is not yet clear how—or if—the Labor Department, the Obama Administration, or Congress, for that matter, ultimately will decide to regulate investment advice, it looks increasingly as though advisers who are “agnostic” to asset-based fees will be best able to make their fees transparent and to supply plan participants with investment advice.

Nor is LPL the only broker/dealer that appears to have stopped relying solely on the traditional broker compensation model. In 2008, UBS launched its DC Advisory Service, a fee-based program that allows UBS advisers who focus on retirement plans to provide advisory and investment fiduciary services to defined contribution plans.

Today, Cerulli’s Modestino observes that less than 30,000 advice-givers—well less than 10% of the total ranks of all advisers nationwide—are dedicated to retirement plan sales and services. However, given rampant concern about retirement savings, 84% of advisers expect to be spending more time on retirement advice five years out, Cerulli says.

Things indeed are changing in this space, as they must. “Technology and practice management represent two key places where independent B/Ds have evolved their traditional value propositions,” Cerulli reported last December. “Due to the battle for financial adviser talent, firms have been forced to offer more services in order to attract this talent,” the consultant concluded.

Illustration by Chris Buzelli