Sellers Beware: Buyers Are Waking Up

Fred Barstein

Industry trends like the growing use of no revenue sharing funds, as well as the sweeping changes expected as a result of the DOL’s conflict-of-interest rule, will probably transform the small and mid-size 401(k) and 403(b) markets forever, nothing will have a greater impact than the growing awareness of plan sponsors about the issues and importance of their retirement plans.

Advisors prepared for this shift will benefit, but those that continue to count on relationships and the belief that plan sponsors will not wake up will suffer.

With nearly 25 TPSU programs that I have personally attended this year alone (and almost 100 since 2013), I continue to be impressed by the zeal with which plan sponsors — primarily HR and finance professionals — want to be educated about their DC plans. Driven primarily by fiduciary and compliance issues and the potential for audits and fines, they are also concerned about fees and how to help employees better prepare for retirement. The complicated spider’s web of share classes, revenue sharing and wrap fees is not just a complete mystery to plan sponsors; it also raises enormous concerns and suspicions. They wonder what we’re trying to hide because it makes no sense to them.

Remember that smaller companies have some of the smartest people, especially as you get closer to the top. As the importance and issues around DC plans elevate, the DC plan will escalate beyond mid-level HR and finance professionals.

Many advisors have smaller legacy plans that may have outdated pricing models, which is why many who sell 100% fee-based today have to hang on to their broker/dealer relationship. As these plan sponsor clients wake up and dig deeper, advisors might not get by just on their relationship. Yet many advisors, just like providers, cannot afford to revise their pricing model across the board for legacy clients.

Plan sponsors are waking up. In the future they will only pay more attention, not less, to their DC plans. Are you prepared for this sea change?

Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.

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