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Can an adviser provide both corporate retirement services and wealth management services to plan participants?

Let’s first consider the practical point of view. The idea that you cannot be everything to all people is a recognized fact. The power of successful advisers seems to flow from their ability to focus on solving specific issues. Try presenting the same idea all day—no deviation—and you may notice the power of the idea grows and grows. More importantly, your knowledge grows as you address questions about your idea and you then add this knowledge to the next presentation.

Then, consider your ability to provide superior service that keeps those clients loyal and happy. Plan sponsors have different service needs from individuals. My experience finds that, once you are servicing approximately five corporate retirement clients, you will need to consider adding a staff person, which will increase your cost. However, a single adviser may handle more than 250 individual wealth management clients with great service. A few institutional retirement plan clients certainly will not allow you to be a top income producer. In fact, it may take at least four times the corporate plan assets to provide the same income level experienced with wealth management clients.

Next, consider the dedication of time needed to become a retirement plan expert; the learning curve is steep. You will need to be committed to keeping current on not only all the laws, the changes in those laws, and how they affect your plan sponsor, but also every provider’s capabilities.

Additionally, let’s consider the fiduciary issues of trying to offer both services to client plans. You provide fiduciary services to a plan sponsor, including the identification and monitoring of investment options, consulting on plan design in the best interests of the participants, benchmarking fees to be “reasonable,” and your fees are “levelized” across the plan. If you accept the fact that, if you provide these services, you are a fiduciary (which is my belief) then it places you in a position where some wealth management activities will be at odds with your fiduciary duties. Some will say that these activities do not make them fiduciaries and, thus, they can continue to give personal advice without a conflict, but that is not what I believe.

Can you give the executives on your plan committee personal wealth management advice without a conflict of interest? Can you take an “in-service withdrawal” from a participant and place it in a portfolio that pays you more than it does when invested in the plan? Is it truly in the participant’s best interest to roll money out of a plan you handle that offers institutional share classes to an IRA offering retail share classes? Can you remain objective in your participant education while selling your wealth management services? Personally, I do not believe a person can stay objective if he can make more money from the participant outside the plan.

There also may be some legal considerations as expressed by Fred Reish and Bruce Ashton in a recent article titled “DoL Advisory Opinion 2005-23A: A Trap for Advisers” in which they say “people interpret that language to say that, if an RIA or financial adviser is a fiduciary to a plan—for example, giving investment advice to the plan fiduciaries or to participants—then they are effectively prohibited from assisting participants in the investment of their distributions, because any fees or commissions that would be received as a result of the investment of the distributions would be a prohibited transaction under 406(b)(1)….so long as you accept that the meaning of the advisory opinion is this broad.”

If you are considering a career path in the institutional retirement business, you may wish to become a specialist, as attempting to provide both wealth management advice to individuals and meeting the needs of plan sponsors may limit your ability to do either as well as the expert.

I think that it may not be fiduciarily responsible, nor a winning business strategy, to offer both. What do you think? Let me know via e-mail: columnists@planadviser.com.

Dorann J. Cafaro is Managing and Founding Partner of The Cafaro Group LLC, a firm of advisers to retirement plan sponsors and participants nationwide. Cafaro also serves as the Executive Vice President of National Retirement Partners. She was the 2006 PLANSPONSOR Retirement Plan Adviser of the Year and is a frequent speaker at national conferences.

*Photography by Cameron Davidson