When NAPA Net launched on Oct. 2, 2012, the advisor sold DC world seemed like it was changing at a pace we had never seen before. Little did we know it was just the beginning.
As I end my tenure at NAPA Net, it feels the same, but I suspect that in another three or four years we may realize that the real change was just starting. So what can we expect in the coming years for what used to be a niche market but has become mainstream with a capital “M”?
Advisors of all kinds, not just plan advisors, face a fee-based fiduciary world. Blame the DOL fiduciary rule if you want, but DC advisors have been moving in this direction for a while, though it’s just now hitting IRAs and spilling over into wealth management. This change, above all others, will have the greatest impact on financial advisors and their clients — and, if you ask many plan advisors, it’s a change for the better.
Industry consolidation will continue for all sectors, as larger record keepers, not content to rely on organic growth, gobble up smaller ones that are no longer able to compete as the stakes get higher. Broker dealers unable to compete in a fee-based fiduciary world will struggle to survive. Active fund manager companies without a viable TDF or asset allocation product will continue to see net outflows and margin pressure, and as a result will likely be providing less and less support to advisors, broker dealers and record keepers. As has been predicted for years, advisors will have to decide whether to be in or out of the DC market, with more and more pressure on dabblers just as some well-funded and aggressive advisor groups enter the market, attracted by the big pools of assets and relatively weak competition.
Plan sponsors are waking up, moving from being unconsciously incompetent to consciously incompetent — a huge leap — whether because of the noise about the DOL rule, litigation, or state plans. Fundamentally, they know they have to contend with employees who are distracted at work by financial stress as they struggle to save for retirement on their own, working way past when they or their employers want — and affecting the bottom line. Will CFOs start paying attention to their DC plans, or leave it for the next CFO to deal with?
So are we facing opportunity or a potential crisis? For smaller BDs and record keepers, as well as some DCIOs, the current crisis could be worse than the Great Recession, which was cyclical and from which we were bound to bounce back. It’s hard to imagine where the bounce for these groups will come from.
The monumental shifts we face over the next three years offer some advisors huge opportunities if they are willing to go through a bit of pain and make smart long-term decisions. Can they live in a world without commissions, revenue sharing and financial support from providers? Can they move from being simply investment professionals who know how to prospect to business people and how to market themselves? Will they learn how to manage people, data, technology and processes? Will they pick the right partners and align with the right advisor group in a world where it’s close to impossible to go it alone unless they are content to stay small and under the radar?
For those advisors who adapt and adjust, the new world will be their oyster. For others, they will continue to grasp at straws.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
