It’s logical to assume that the new DOL rule will offer Elite Plan Advisors (more than $250 million in DC AUM and 10 plans) more opportunities in the small plan market.
That would be true either because their broker-dealer will not allow them to act as a plan fiduciary or they don’t want the headache or liability that might compromise their IRA and wealth management businesses. Advisors that dabble in the DC market will move on, leaving more opportunities for specialists. But let’s look at the realities of the situation before we jump to conclusions.
How will Elite Advisors find these new opportunities? Many think they will get referrals from Emerging Advisors (less than 5 plans) who no longer want to service their DC plans. But those referrals will probably only come from advisors within their BD network, and referring may be a fiduciary act. Some BDs might be willing to take on that responsibility, which means another documented process, though that may be cold comfort to the referring advisors.
What about providers referring orphan plans? Even if they don’t receive direct compensation for the referral, if there’s an implicit understanding that the provider will receive more business from the advisor, then that referral could also be considered a fiduciary act.
Let’s look at the business realities. Margins, even on small plans, are getting too thin to pay another advisor. Elite Advisors accustomed to providing high levels of service and customization to larger DC clients might struggle with profitably servicing smaller plans.
There are some solutions now coming to market that could make it easier for both Elite and Emerging Advisors to serve that market more efficiently, and some entirely new models emerging that offer a streamlined offering for smaller plans with no revenue sharing.
No doubt there will be more orphaned plans, but finding them will be hard. And some Emerging Advisors that not properly supervised will keep working with DC clients. So prospecting for small plans in the future for Elite Advisors might include finding emerging advisors looking to get out of the business, as well as a business model that produces real profits – not just more revenue and work.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
