Data & Research June 9, 2009

Advisers Will Have Trouble Dabbling in Retirement

Increasingly complex market trends will make it impossible for financial professionals to dabble in the retirement space, a new report says.
Reported by

The report, “Retirement Market in Focus,” released by RG Wuelfing and Associates and Retirement Research Inc., says that growing regulatory complexity, fiduciary requirements, adviser compensation transparency, the move to a fee-based compensation model, open architecture, and the provider consolidation have conspired to favor the retirement plan specialist, or “the ‘heavy’ adviser whose business model may hardly be distinguishable from that of the traditional fee-based vendor selection consultant.” (See “Audio Interview with Fred Reish.”)

The changing role of advisers will also drive a simultaneous change in the wholesale channel. The report says, “We think the combination of changing adviser needs and serious pressure on provider margins will conspire to generate major changes in distribution strategy, structure, and resources in the years immediately ahead.”

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Changing 403(b) Landscape

Labeling the 403(b) space “arguably the most dynamic retirement market sector,” the report predicts the pace of transition and turnover by 403(b) providers is likely to pick up in coming months.

The report notes that “marginal providers” have already exited from the 403(b) custody business, or at least the multivendor 403(b) space, and anticipates that to increase (see “The New 403(b) Model: Exclusive versus Multiple Vendor Programs’). In the next year or two, more providers will likely get out, outsource, or stay and acquire 403(b) competitors, the report asserts.

The size of the roster of 403(b) providers is also being driven by plan sponsor moves to cut back their vendor lists or move to a single provider as a result of new 403(b) rules, according to the report.

Get Ready for Fee Disclosure

Finally, the report says retirement service providers are mindful of the rapidly changing rulemaking/legislative landscape regarding fee disclosure (see “Fees are the Word” and “EBSA Again Delays Effective Date of Advice Rule“)

While the competitive drama in Washington between the DoL and Congressional interests continues to play out, plan sponsors and their advisers are increasingly treating full fee disclosure as a given—certainly in the mid through large plan markets and increasingly in the smaller plan market as well, the report states. “Naturally enough, service providers are accommodating those needs, though being careful about making systems investments pending the legislative/regulatory dictate.”

Information about ordering a copy of the report is available here.

In Practice June 9, 2009

Cutting Expenses Last Resort for Advisers

A survey of SEI advisers found that cutting expenses—especially by reducing staff—is a last resort as they attempt to restore firm profitability.
Reported by

According to the SEI Advisor Network Quick Poll, “How Are You Restoring Firm’s Revenue,” only 14.9% of the 200 respondents cited expense reduction as their primary strategy for restoring revenue, and only 1% said they are reducing staff.

Instead, advisers are focused on building business through client acquisition efforts, primarily driven by referrals, and developing new alliances with centers of influence, according to SEI. More than half of the poll respondents (51.6%) ranked new client acquisition as their number one strategy for restoring revenues. Additionally, about 24% said establishing formal center of influence relationships was their primary strategy.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

The poll also gathered insights specifically related to client acquisition techniques. When asked what new business development strategies or tactics advisers were using for the first time or had only used minimally before, about 44% stated they were specifically asking clients for referrals. Only a small percentage said they were exploring direct marketing (10.7%) or traditional advertising (5.3%) to increase client acquisition.

In analyzing client acquisition success, about 37% of advisers attributed the success of new client acquisition to service-related issues with their previous adviser. In addition, 18.6% felt that the primary reason their prospects became clients was because they had decided they no longer wanted to manage their investments themselves.

“Given the service-related issues some advisers are facing, they still need to consider how efficient business management can reduce expenses without reducing capacity,” said Stephen Onofrio, senior managing director at SEI Advisor Network, in the release. “Focusing on growth is still the most critical concern, but having a client acquisition ‘process’ that integrates an adviser’s front office with their back office is also key.”

«