Plan Adviser Ranks Poised for Double-Digit Growth

The professional retirement plan adviser profession will be fundamentally transformed during the next three years, according to a study from Diversified.

“Advisor Practices of the Future 2012-2015” illustrates how mandated fee disclosures and health care reform will fuel double-digit growth for advisers who work primarily or exclusively with retirement plans, as practices transition from regional to national, and merger and acquisition activity increases.

The market share of professional retirement plan advisers in the $10 million to $500 million market, a targeted segment, will grow from 25% to 40%, and the number of plan advisers will increase by nearly 50% during the next three years, Diversified predicts in the report. To support this growth, firms will need to focus on recruiting and developing talent, as the pool of qualified candidates may not be large enough to meet demand.

Thousands of advisers generate some revenue from retirement plans, but Diversified estimates the number that focuses exclusively on midsize to large plans at approximately 550 professionals, according to Joe Masterson, senior vice president and chief sales and marketing officer of Diversified. “With an increasing number of health and welfare advisers, and wealth management advisers poised to migrate toward this market to enhance their practices, the industry is about to embark on a new era of growth and development,” Masterson said.

The study predicts a number of trends that will shape and transform adviser practice. Plan sponsors will likely focus more on participant outcomes. As more companies transition from defined benefit (DB) pension plans to defined contribution (DC) plans, plan sponsors’ interest in measuring participant retirement readiness will surge.

As a result, advisers will focus more on outcomes and less on enrollment, asset allocation and debt management, while service providers will train their attention on planning tools, participant-level indicators and plan reports that help advisers monitor progress. By 2015, 51% of retirement plan advisers expect to offer participant advice directly, and an additional 26% expect to offer the service in partnership with another organization.

Regional firms will be folded into national practices. Increased merger and acquisition (M&A) activity—90% of advisers expect M&As to increase in the next few years—coupled with technological innovation that makes it easier for practices to operate nationally will help many regional firms achieve greater economies of scale by building national practices. As this trend develops, advisers will less frequently use plan type and geography to define their target markets.

Reliance on retainer compensation will increase. The percentage of plan sponsors with $5 million to $500 million in plan assets who rely on an adviser paid on retainer is expected to increase, to 49% in 2015, from 33% in 2012. Consistent with industry fee compression, the shift toward a retainer model is expected to spur additional adviser search activity, which will prove difficult for advisers attuned to an asset-based compensation system while creating new opportunities for those who successfully operate within the retainer model.

“Change is inevitable for professional retirement plan adviser practices,” Masterson said. “The Advisor Practices of the Future 2012-2015 report aims to help advisers anticipate the new challenges and opportunities that will surface as the industry is transformed.”

 “The Advisor Practices of the Future 2012-2015” study is based on insights from more than 50 retirement plan advisers, consultants, and practice leaders representing the spectrum of the profession and from Diversified, a provider of retirement plan administration, participant communication and open architecture investment solutions.

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