The year ahead is fraught with danger and opportunities for DC plan advisors. Here are the three trends I would be watching if I were a DC plan advisor.
DOL Rule
As expected, it looks like the DOL’s fiduciary rule will be promulgated in the first quarter of 2016, with everyone watching carefully for adjustments to be made after the many comments received. As detailed in a previous post, plan advisors likely to benefit the most or being hurt the least are RIAs that do not do rollovers. Those most vulnerable are probably the “Emerging” plan advisors that focus on rollovers in a BD that does not understand the DC market. The DOL rule will accelerate what the market has already started: a move toward more experienced plan advisors managing DC plans.
The scary part of the DOL rule for experienced plan advisors is the apparent inability under the proposed rule to charge more for rollovers than what they charge the DC plan — although I am sure that advisors will figure it out even if the rule does not change, either by creating a BICE or waiting for a period of time (6-12 months) before they can raise fees on IRA rollovers.
There will be significant opportunity for Elite plan advisors looking to recruit other plan advisors to join their teams, especially Core and Elite advisors in BDs that do not get the DC business and try to force these experienced advisors into a restrictive business model with limited choice devolving to the lowest common denominator.
Convergence of Benefits
As more health care plans become “DC-ized” — that is, they mimic the evolution of retirement plans from DB to DC — employers and workers need someone to manage the limited dollars in their benefits budget. One size does not fit all, and in the wake of the Affordable Care Act, more companies and workers are facing difficult choices on where to allocate their limited dollars.
Advisors that have an integrated retirement, financial planning, health care and insurance practice should have more opportunities and less risk, while plan advisors that do not expand their practices could see those integrated advisory practices picking off clients. Advisors that focus on retirement will be in the driver’s seat, but they must leverage their position or lose out.
Engaging the CFO
Until the industry shows CFOs why having a low cost, mediocre DC plan that does not help employees to save enough to be able to retire on time affects the viability of their companies, plan advisors will continue to struggle with massive fee compression.
CFOs need to be shown the actual increased health care, disability and absentee costs of older workers who are not able to retire, not to mention lower productivity and morale among younger workers who are not able to move up. Employing people at their highest income rate and lowest productivity is not a model for success — just ask the New York Yankees.
