At a recent TPSU program, half the room was filled with plan sponsors from municipalities and government entities – people who had the same issues as their 401(k) and 403(b) brethren, and blended in seamlessly. So are there opportunities in the 457 government market? Does it represent a blue ocean opportunity for advisors?
At this week’s NAPA 401(k) Summit in Nashville, I caught up with Tampa-based advisor Mike Montgomery. Twenty percent of Montgomery’s clients and 40% of his assets are with government clients. Though most of the ERISA requirements don’t apply to them, Mike treats his government clients like ERISA fiduciaries. The differences between government and corporate plan sponsors are less than most advisors might think, Montgomery noted.
Certainly there is a cultural difference, just like with 403(b) plans. Generally speaking, not-for-profits are more attuned to taking care of their employees, while government entities are more likely to follow detailed processes and are concerned not just about following the law but also staying out of the headlines. Montgomery has a 56-point fiduciary checklist, and government entities do not balk at going through it.
Government plans can be very political, which can be a problem – but that’s true with all types of plans. Larger 401(k) plans have moved away from relying on the counsel of “blind squirrels;” government entities are likely to follow. Even a small government plan might have $10 million, so the plans tend to be bigger.
A big difference is that most government plans are direct sold, with the provider doing the employee education – just like 401(k)s a decade or so ago. Some providers might be more open to working with advisors these days, but it represents a paradigm and revenue shift.
Regardless, the government market looks and feels like the corporate market 10 to 20 years ago: shifting from DB to DC due to concerns about liability and underfunding; facing a growing concern about liability and lawsuits; and perhaps moving from direct sold to advisors. Sounds like a blue ocean to me.