Looking Ahead

“This is a huge bull market for some retirement advisers,” according to J. Fielding Miller, CEO and Co-Founder of CAPTRUST Financial Advisors, who predicted that many of the advisers attending the PLANADVISER National Conference “should double or triple business in the next five years.”

Over the next five years, consolidation in the industry will result in fewer organizations serving retirement plan advisers, predicted Edward O’Connor, Head of Retirement Services, UBS Financial Services, Inc. However, as for determining how many advisers there will be, “whatever number is predicted, I think it will be larger,” he said.

Miller agreed that there likely will be more advisers, but the amount of resources required for an individual adviser will increase because “what we’re solving for in five years is different­ than now.” There will be a significant emphasis on an adviser’s business model moving forward, and the industry will be focused increasingly on making sure plan sponsors are being good corporate stewards, he said.

When serving clients at a growing practice, advisers have a real organizational challenge, Miller said. “I think tools will come and go, and what the home office gives you will change, but the real emphasis is on how your team is set up.” Advisers will have to figure out ways to make their top 10 clients—and the bottom 10—feel the same. “You don’t want to lose a client every time you bring a new one on,” he noted. This will require advisers to build a team around themselves and learn how to build an infrastructure to double business without doubling working hours—or “giving you a heart attack,” Miller commented.

Fee Level Concerns

Over the next five years, fees will continue to be an issue, panelists agreed. When the revised 5500 hits plan sponsors’ desks next year, the industry will see an increase in fee awareness, O’Connor predicted.

“I think we’re all going fee-for-service,” O’Connor said, explaining that UBS expects to increase its DC Advisory Service, a consulting program for its advisers that allows them to act in a fee-based role, next year.

Agreeing that fees are an issue, Robert Francis, COO, National Retirement Partners (NRP), said that, if he had the wisdom of hindsight, he likely would have acknowledged fiduciary status and begun the firm’s benchmarking of total plan expenses earlier. “We’ve been doing expense analysis for similar plans and the disparity is significant,” he said.

The Broker/Dealer Value Proposition

What will firms do to serve their retirement plan advisers and help them in this competitive marketplace? Although, in the past, LPL wasn’t “laser-focused on retirement plans,” acknowledged Kevin Keefe, SVP of Financial Planning at LPL Financial Services, the firm plans to “be a player in 2009 and beyond.”

He said, “We’re not in such a disenfranchised place because the definition of retirement has changed so drastically in the last 10 years, and we’re at the right point to become much more focused [on retirement].” LPL has taken steps to learn more about its advisers who work with retirement plans, learning that 5% of LPL advisers generate 50% or more of their revenue from such programs. In addition to enhancing the company’s fee-based offerings for advisers, LPL is hiring a new “general of retirement” (later in the month announced to be Bruce Harrington) to support the business, Keefe said.

The value driver of NRP is to have an affiliation with leading retirement advisers and provide them the tools and services to give them differentiation, Francis said. “I don’t think that NRP has an acquisition strategy, but an affiliate growth strategy,” he said, noting that it wants firms that can prove they will leverage plan sponsor relationships and will have year-over-year growth of 3% or more. “Maybe there will be a liquidity event,” but that is not what the firm is focusing on at this time, Francis said.

In fact, NRP never was intended to focus purely on retirement plans, Francis said. The game plan always was to focus on the “instividual,” he explained, focusing on the plan sponsor arena, but executing a full-service strategy that includes individual participants. Currently, NRP is looking to add wealth management to its practices, Francis noted, telling advisers they need to “recruit rollover or wealth management expertise into your shop.”

CAPTRUST has not changed its business model much over the last few years, which Miller sees as a positive. Internally, he noted, the strategy the firm employs today is about 75% to 80% the same as five years ago, while the firm has tripled in size. Their business model is about supporting fewer advisers doing more business. Instead of having every adviser deliver all services, “we have our internal research team do vetting and deliver more concentrated delivery,” Miller said.

UBS plans to increase its branding with retirement over the next few months, but O’Connor admitted that, while his firm does not “have a very targeted message for plan sponsors,” he does not see it as a big negative, and is not very concerned about the firm’s positioning in that market.

Growth in Wealth Management

What will be the drivers over the next five years? Wealth management will be significant, panelists agreed. “The honeymoon is coming back at corporate headquarters for wealth management, and the retirement business,” O’Connor said. As a result, there are more and more resources being applied to that area.

At CAPTRUST, Miller noted, wealth management still makes up one-third of the firm’s revenue, partly because he has “taken the position that you have to set up an organization that approaches all needs.”

Advisers will need to be the aggregating adviser to address the wave of Baby Boomers approaching retirement, Keefe said. Francis agreed, saying the role of the retirement plan adviser should be focused on consulting.

Financial services firms and advisers will spend much more time determining wealth accumulation and the right way to construct portfolios for participants and executives who want more broad-based financial planning, O’Connor said. “[This need] will put more pressure on us,” he predicted.

“The demand for advice in the marketplace is like nothing we’ve ever seen,” Keefe commented. Wealth management, especially considering the volume of assets changing hands in the rollover market, will present a significant opportunity for advisers, Francis predicted. “Advisers are in the seat to provide exit counseling [to plan participants] for rollover business,” he explained.

In addition to the expansion of wealth management, Francis said he expects there will be more focus on the nonqualified plan space, as well as an increased emphasis on retirement readiness and retirement income. One topic within the retirement income space is that of health care. O’Connor said he thinks that the industry will be talking more about health care and that advisers will need to be more involved with the health care conversation, since it is such a significant decision as it relates to retirement income.

The opportunity for financial services firms over the next five years is impressive. “Someone is going to do extremely well in the next five years,” Miller commented, and his firm, and financial services firms, will need to execute to make sure it is they.

Photography by Bob Croslin

From left: Charles Ruffel, Kevin Keefe, Fielding Miller, Bob Francis, and Ed O’Connor