2008
Survey of Advisers – Benchmarking Your Practice

Capturing the profile of the "typical" retirement plan adviser

In the past, when pitching a retirement plan, advisers specializing in the retirement plan space often found themselves competing against wealth management advisers. However, advisers in this field say they are increasingly running into other advisers who think they have the same competitive advantage—an expertise in retirement plans.

A recent survey by PLANADVISER of advisers who work with employer­sponsored retirement programs finds that more than three-quarters of respondents have at least five years’ tenure as retirement plan advisers—and roughly one-third of those have more than two decades’ experience in the field.

Having said that, only about one in five is 100% dedicated to working with retirement plans, though, for more than half, retirement plans make up more than 80% of their “book." Advisers surveyed have a median 65% of business from 401(k) plans, and almost two-thirds of them are offering wealth management services.

The target market for the respondent sampling was solidly mid-market; more than half focus on the $2 million to $20 million segment. They seem to be hitting those targets, with the median client size at both individual and team-based practices directly in that range. Respondents not only have experience, but also a strong retention record with their clients; the median tenure was seven years—the average even longer.

While there has been an increased examination of plan fees and fee disclosure in the retirement plan world, there has not yet been a rush to move whole businesses over to the fee-based model. Most advisers surveyed still receive payments of asset-based fees (85.1%), and the median of revenue derived from such fees is 65%. The second most common fee type was commissions (54.9%), and the median revenue amount derived from that was 47.5%.

The continued prevalence of the commission structure might be as a result of respondents’ choice of business model—37.7% of advisers are associated with an independent broker/dealer, while another 29.2% are at a national full-service wirehouse.

That business model choice also may explain respondent fiduciary positioning. Nearly two-thirds of survey respondents have embraced that role, with reasons ranging from the practical (“we give advice") to the rational (“we are functional fiduciaries, so why not say so?") to the “obvious" (“clients expect it"). The reasons against were, for the most part, obvious, ranging from “not allowed’ to “too much risk." Interestingly enough, some note that, while they knew they were “technically" fiduciaries, they were not marketing it.

Nearly all adviser respondents offer a written service contract/guarantee, and nearly as many deal with investment monitoring, investment manager search and fund replacements, and IPS plan design. In addition, while there was a strong representation of firms that provide support in areas such as plan design, communication policy statements, enrollment meetings, and ongoing participant education, those services were noticeably less common. In fact, individual participant investment advice was the least commonly cited service area—though some of that was almost certainly a function of the line between education and advice that many advisers have chosen not (or been told not) to cross.

“How does my practice compare?" is a question that, at some point, passes through the minds of all successful advisers. Knowing what the best firms in your industry are doing is the best way to stay ahead of the crowd.

The Basics

Years spent as an adviser to employer-sponsored retirement plans:

What is your target market?

Total assets under advisement:

Average: $1.1B
Median: $180MM

Total assets under advisement (individual):

Average: $229MM
Median: $65MM

Total assets under advisement (team/firm):

Average: $2.2B
Median: $530MM

Total qualified plan assets under advisement:

Average: $946M
Median: $118MM

Total qualified plan assets under advisement (individual):

Average: $123MM
Median: $32MM

Total qualified plan assets under advisement (team/firm):

Average: $1.6B
Median: $325MM

Average plan retention (years)*:

Average: 7.5
Median: 7.0

*19 respondents said they had never lost a client

Percentage of assets representing retirement plans:

Number of qualified plan clients:

Adviser firm affiliation:

Service Model

Business breakdown:

Most common broker/dealers:

Does B/D affect the level of services you provide to retirement plans?

How do you feel about your broker/dealer?

Does your B/D offer any of the following support specializing in retirement/qualified plans?

Most (60.1%) of advisers surveyed have some wealth management business. If you do not provide individual wealth management services, do you:

Refer to another member on your team?: 61.9%
Refer to an outside firm?: 27.4%
Other (most commonly "do not get involved"): 10.6%

Do you offer your services as a fiduciary?

Yes: 63.9%
No: 36.1%

Plan services performed for retirement plans as part of a retainer or annual service:

Support Services

What kind of support services/tools do you currently rely on from DC plan providers, investment managers, or your broker/dealer?

Compensation and Fees

How are you paid for qualified plan business?

Percent of business revenue derived from each source over previous 12 months:

When are your fees disclosed to your clients?

How do you disclose your fees to your plan sponsor clients?

What percent of your revenue goes to the following:

Methodology

In July 2008, approximately 7,500 online survey questionnaires were sent to financial advisers from the PLANADVISER database, as well as client lists supplied by DC recordkeepers. We received 382 usable responses, of which 258 passed our eligibility criteria for the section reported here that the adviser be “personally involved in evaluating and recommending defined contribution plan providers/recordkeepers on behalf of qualified plan clients’ or “personally involved in evaluating and recommending fund choices on behalf of qualified plan clients.’ The questionnaire, developed by PLANADVISER editorial and research staff, consisted of more than 40 questions, with a significant emphasis on the scope of the adviser’s qualified plan business.

Illustration by Yuko Shimizu