The lure of big plans with larger assets and high-profile clients seems too much to resist for most advisors. Who doesn’t like to brag about their DC AUM?
Advisors’ business models evolve to service larger, more sophisticated plan sponsors, which often forces these same advisors to abandon the smaller market. But with alarmingly declining prices and more demanding clients up market, some elite advisors are looking at moving back down market. Will they be successful?
Let’s start with logic. DC plans with less than $10 million in assets seem very attractive to elite advisor groups: Margins are higher, clients are less demanding and the competition is weaker. Elite advisors can bring their best practices to smaller plans, offering packaged investment products (such as collective investment trusts) and partnering with one or two record keepers to create virtual private labels — so-called “mass customization.” Some firms are looking at virtual MEPs for smaller plans. It’s one reason that elite advisors are trying to limit their partnerships to providers who can effectively service plans of all sizes, from $1 million to $250 million.
But before we let logic cloud our vision, let’s look at reality. Record keepers have had a hard time trying to move up or down market, which is arguably at least part of the rationale underlying the mergers of John Hancock and NY Life, Transamerica and Diversified, MassMutual and Hartford, ING and CitiStreet (now Voya), OneAmerica and BMO, and Great West with Putnam and JP Morgan. Contrast that with Fidelity and Principal, which have run almost separate companies and sales forces for the various markets.
So if record keepers — who might have greater intellectual, technology and financial capital and greater business acumen than advisors — struggle to effectively service multiple markets, what makes advisors think they can?
The quandary is that an advisor’s customer service people, accustomed to dealing with bigger, more demanding high profile clients, often have a hard time scaling back for smaller plans. What do you tell them — “Give these clients less service”?
Assuming that advisors can offload some of the service to their record keeper partner(s), the issue of prospecting and closing smaller plans remains. Do you want lead advisor(s) going after smaller plans when sales to larger ones are so brisk? Can these lead advisors attract younger, less experienced advisors, mentoring them and allowing them to succeed and sometimes fail on their own?
See what I mean? Moving down market is not as easy as it seems.
