There are many reasons why advisors considering the DC market should not dabble, including the need for high levels of technical competency, fiduciary risk and the long sales cycle. According to research by Cerulli just published in the Wall Street Journal, another reason is that a third of the advisors that specialize in the DC market or derive 40% or more of their revenue from it have a 25% or greater profit margin.
Unsaid but implicit is that it can take 5 to 10 years or more to build a really profitable business. Along with building up a solid client base, advisors need to build support infrastructure, according to Bryan Stephens, an advisor with UBS in New York. Henry Yosida, an advisor in Austin, Texas, cautions against going too far up-market, where pricing for larger plans is competitive. And Jim Sampson, based in Providence, Rhode Island, focuses on really small plans where there is less competition.
Yet the percentage of advisors classified as DC dabblers has risen from 10% in 2008 to 12.6% in 2011, because the market is very attractive as a hedge against times when individual and high net investors go to ground. There’s something magical and sticky about payroll-deducted retirement and savings assets — as we saw in the last recession, most people just keep on keeping on. Though the percentage of experts in the DC market has held steady, according to Cerulli, many experts predict that the number should grow based on demand and the increasing sophistication of clients.
