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LPL’s Reich: Specialists Will Thrive in New DC World

Though regulations have, and will likely continue to, make it tough for the emerging plan advisors to work with DC plans, competition will put even more pressure to either partner with a specialist advisor or raise their game, notes Dave Reich, EVP at LPL’s Retirement Partner group. “In a shake out, specialists survive,” notes Reich. “It’s harder for the occasionalist but don’t think they are going away anytime soon.”

DC record keepers are going through a classic case of consolidation as outlined in the Harvard Business Review’s “Consolidation Curve,” but it’s not clear that the plan advisory business will go through that type of consolidation. Like lawn or pool maintenance companies, there’s always room for a solo plan advisor practitioner with low overhead supported by a big BD or a third-party tool manufacturer selling unsophisticated buyers on price only. While BDs may be consolidating, like with DCIOs, the retirement market does not drive their business.

Reich envisions three scenarios for plan advisors:

  • Sell to an aggregator

  • Affiliate with an independent aggregator

  • Join a resource rich BD

“Plan advisors are under margin pressure because they don’t understand their own pricing and profitability,” states Reich. “They are too focused on price which is unsustainable. Advisors are still serving some plans for less than it costs.” When it comes to focusing on plan outcomes, Reich thinks that one-third are doing it, one-third want to and the rest are focused on compliance.

One reason that more advisors are not focused on outcomes is because most are basically sales people rather than retirement plan professionals — once they make the sale, why advocate for the change that was the driving force behind the advisor-of-record change? Why force a record keeper change even if it was warranted — a big reason that many plan advisors are trying to manage relationships with 20 or more platforms today.