At an advisor conference this fall, one industry expert predicted that two out of three advisors will exit the DC market. Is he right?
Like with many statistics, the answer is, “It depends.” Taking a step back, research by TRAU shows:
- 300,000 active financial advisors (10% pure RIA)
- 250,000 getting paid on a DC plan – Emerging Advisors
- 25,000 with more than $25 million DC AUM and five plans – Core Advisors
- 2,500 with more than $250 million and 10 plans – Elite Advisors
The Emerging Advisors include accommodators – those who do not intend to focus on DC plans but do not want another advisor working with an important client – and blind squirrels. The conventional wisdom is that a vast majority of Emerging Advisors and even some Core Advisors will exit the DC market if forced to act as a fiduciary. These advisors may refer plans to colleagues in the same broker dealer or RIA.
Not so fast. A referral to another advisor might be considered a fiduciary act. Moreover, is there any way to claim that advisory fees are reasonable if a significant percentage is being paid to someone who does nothing? Will BDs allow business to evaporate, or will they force smaller plans and less experienced advisors into a strict set of record keepers and investment menus using an outsourced fiduciary?
Some Emerging Advisors see the DC business as an opportunity, perhaps because many industry experts are claiming that there will be a mass exodus. More and more advisors are hybrids for their wealth management clients, so acting as a fee-based fiduciary advisor is not a foreign concept to them. And younger advisors see DC plans as a way to build their financial planning business, while benefit brokers may look to DC plans as a way to augment diminishing revenue under Obamacare.
Who’s right? My guess is that there will be fewer Emerging Advisors, as larger BDs like wirehouses force smaller plan advisors out and some older ones with a few plans may not want to bother to be an ERISA fiduciary. But at the same time, there will be more Core Advisors, as many Emerging Advisors see retirement as a booming business, while aggressive younger Core Advisors will continue to grow. At the same time, it’s a sure bet that aggregators will be recruiting more advisors, not less, swelling the ranks of Elites.
So I guess you could say there will be more and less plan advisors, depending on how you count them.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
