Just as Mark Twain wrote to the New York Journal after his death was reported in their obituary section, the death of Blind Squirrels in the DC market is greatly exaggerated.
Some experts whine about the "incompetence" of these retirement plan amateurs and the "damage" they cause to DC plans and participants, with some going so far as to opine that their elimination would be a great boon to the industry. Others are predicting their demise as a result of the pending DOL conflict of interest rule. But when we dig deeper with a practical understanding of how the DC market works, nothing could be further from the truth.
Let’s level set. There are three plan advisor market segments:
- Elite, with $250 million or more DC AUM (2,500 estimated)
- Core, with $25-$250 million (25,000 less 2,500 Elites)
- Emerging (250,000 getting paid on a DC plan minus the 25,000 Core and Elite advisors)
Furthermore, within the emerging plan advisor market, there are two segments:
- Accommodators, with fewer than10 plans who service key clients but never intend to focus on DC plans
- Blind Squirrels, with five or fewer DC plans
As one credited with making the term famous in the DC market, you might think that I look at Blind Squirrels negatively or that these advisors are offended by the term. Wrong again. Every advisor was a Blind Squirrel at one point in their career. Some were lucky enough to find a mentor, and others worked at providers. Most advisors did it the hard way and taught themselves, learning on the job. At many conferences, advisors sheepishly come up to me and admit that they are Blind Squirrels, with most asking how they can learn more.
Ten years ago, 90% of all plans were serviced by a Blind Squirrel. Certainly, that percentage varies by market size and would be different if we were measuring assets rather than number of plans. A major BD with more than 5,000 reps and a robust DC plan service group admitted recently that 40% of all their advisors with a plan had just one.
Are Blind Squirrels healthy for the DC market? Wouldn’t we be better off if all plans were serviced by experienced advisors? Isn’t today’s fury over retirement advisors focused on problems caused by Blind Squirrels? Maybe, but consider a world without Blind Squirrels. Who would service small plans and start-ups? Do the math — there are only 25,000 Core advisors and close to 1 million DC plans. Additionally, where would the next generation of advisors come from? It’s like asking why we have minor league baseball.
The better question is how can we better equip, train and mentor these burgeoning advisors, not shut them down. With all the hype about robo-advisors and robo-recordkeepers and talk about massive state-run MEPs, advisors armed with the behavioral finance principles embodied in the “ideal plan” are still the greatest hope we have to solve the retirement crisis.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
