Most industry experts agree that it’s going to be tough for solo advisors to make it on their own in the DC business.
The obvious choices are either to join a specialist firm or a BD with scale and resources, sometimes both. According to Pat Rieck, head of Corporate Retirement at Morgan Stanley, “Margin pressure will force plan advisors to better leverage data and technology and, in order to sustain their value proposition and price point, access to information will become more important than ever.”
“Scale matters,” explains Rieck, “not just for record keepers but for broker dealers as well. Smaller BDs will have to consolidate as advisors will need more support, especially under the requirements of the DOL’s fiduciary rule proposal.” Other industry experts have predicted that the DOL’s rule will force some BDs to restrict advisors from representing DC plans if it jeopardizes their IRA business — perhaps it could accelerate the ongoing consolidation of smaller BDs as well.
Rieck acknowledged that “there is a coverage issue and the industry has an obligation to help and adapt, which is why Morgan Stanley has a small-plan solution to support generalists who work with small businesses.” Specialist groups may not have that issue, which may help the elite advisors, but they also lack a broader base of business, particularly in a market that has better margins.
To get data, record keepers have to cooperate. “We are getting a combination of resistance and support from record keepers depending on who they are,” Rieck says. While it’s only going to get tougher for record keepers to resist the demand for plan and participant data, larger firms like Morgan Stanley have the clout to force the issue, which is key for advisors to create asset allocation models, according to Rieck.
When the fiduciary movement started in the DC market, experts predicted the demise of wire houses in the DC business because they would not allow their advisors to act as co-fiduciaries. That prediction did not come to pass. Going forward, the ability to leverage the resources, brand, scale and access to data that only larger firms can offer will remain a distinct competitive advantage. All those factors matter greatly in the DC market — especially under the proposed DOL fiduciary rule.
