B/D Advice
Advisers who specialize in retirement plans, and can address fiduciary concerns and consult on plan design, are in high demand in today’s environment, says a report released by Cerulli Associates in early 2007, “State of the 401(k) Marketplace.” They are an elite group because they have developed the ability to differentiate a complex array of products, features, and separate pricing scenarios from nearly every provider, and apply it to individual plan specifications. Cerulli’s report noted that consortiums of advisers who specialize in selling and servicing 401(k) plans have formed—such as National Retirement Partners (which has a broker/dealer (B/D) subsidiary, NRP Financial) and CAPTRUST Financial Advisors—a dynamic that leads to benefits for both advisers and providers. Advisers benefit by being able to leverage strengths across broader retirement specialist platforms, while tapping into a larger pool of capital to grow business and make money. Providers benefit because the specialists frequently become predisposed toward certain providers.
Those same retirement plan advisers frequently look to their broker/dealers for help in growing their retirement plan business, but this has proved to be a bit of a problem for some. Most broker/dealers (and wirehouses) offer a wealth of resources for retail advisers, but the independent broker/dealer channel traditionally has not been a source of much support to retirement plan advisers, who frequently have turned to the recordkeeper to fill that vacuum.
Today, according to the Cerulli report, wirehouse B/Ds have realized the growth potential and the significant number of advisers in the retirement plan space and are encouraging the creation of groups of specialists, who generate the majority of their income from the sale of retirement plans. Independent B/Ds traditionally do not have the same structures in place, making it potentially more complicated for advisers looking to grow their businesses there.
Within the independent B/D segment, however, some firms have seen significant growth in their number of retirement plan advisers, which has led some to look at the services they offer in the retirement plan space and improve upon them. For example, of St. Louis, Missouri-based Century Securities’ 189 producing representatives, 130 (69%) now work with employer retirement plans, 75 of whom have between 10 and 25 plans under management. Kovack Securities and Kovack Advisors, based in Ft. Lauderdale, Florida, now say that about 125 of their 275 registered representatives work with retirement plans—although, as has been reported to PLANADVISER by other B/Ds as well, the firm is not quite sure of the breakdown of how many plans each adviser has under management. However, the firm does know it spans quite a gamut, with some supporting just a handful of plans, though two advisers are working with more than 100 plans each.
Luckily for retirement plan advisers intent on staying put at their independent B/D, it is safe to say that many firms in that space are realizing that the retirement plan adviser segment of their representatives exists and now are trying to broaden services to them.
What Broker/Dealers Are Doing
Earlier this year, PLANADVISER contacted various independent broker/dealers and asked them to provide us with information about their services for advisers in the retirement plan space. The results, taken from a handful of various independent B/D respondents, show a marked increase in awareness of this growing segment of representatives.
Woodbury Financial Services, based in Woodbury, Minnesota, does not say exactly how many of its 1,800 producing reps are working with employer retirement plans but it has set up resources for those advisers: The firm has a dedicated group of employees to serve its retirement plan advisers. As far as retirement plan assistance, Woodbury offers its reps access to seven support staff members who specialize in retirement plans: three advanced sales attorneys, two product managers, one qualified plan consultant, and one internal sales consultant.
FSC Securities, headquartered in Atlanta, Georgia, says that about 650 of its 1,650 advisers serve employer retirement plans. Although most of those have fewer than 10 plans under management, the firm has taken steps to better accommodate the advisers taking on this role. The firm now offers access to an in-house fiduciary analyst, as well as third-party Employee Retirement Income Security Act (ERISA) experts and qualified plan experts, who can help with 403(b) plans in addition to 401(k). FSC also offers registered investment adviser (RIA) compliance support and utilizes Mainstay Consultants to help independents stay in compliance with the SEC. However, the firm still does not have Request for Proposal (RFP) response or provider search support, nor does it offer assistance with plan design services.
PlanMember Securities is an SEC-registered broker/dealer and investment adviser that offers a range of retirement products, managed accounts, and investment advisory services—the firm says it has 360 registered advisers, all of whom serve the retirement plan market. The B/D offers a proprietary retirement plan advisory product, the PlanMember Services Program, that offers plan sponsors access to retirement plan services including consulting, investment, administration, and trust services. The program also offers plan participants access to individual planning and investment services.
Commonwealth Financial Network is headquartered in Waltham, Massachusetts. The firm has 1,365 registered representatives, 280 of whom work with retirement plans—more than half of which serve between 26 and 50 plans each. “Commonwealth’s Retirement department is committed to maintaining superior industry knowledge and an understanding of the issues affecting the retirement arena,’ the firm told PLANADVISER. “We strive to be an indispensable partner to our advisers by bringing tangible services to support them in the qualified plan market. Not only do we help advisers maximize the services they provide to retirees and high-net-worth clients, but we also help them better position their practices in the financial planning/de-accumulation market.’ The firm does allow registered representatives to act as fiduciaries on retirement plans.
Why ChooseWhat kind of services can a plan adviser expect to receive from independent B/Ds? They can look for a dedicated retirement plan adviser group within the broker/dealer. Further, firms such as NRP Financial, Woodbury, and Commonwealth offer a wide variety of services to advisers working with 401(k)s, including services such as commission tracking, compliance services, support programs for teams and assistants, plan design services, IPS support, and investment analytics tools, as well as managed account programs and asset allocation models (which might become more appealing to the adviser because of the qualified default investment alternative (QDIA) regulations).
Commonwealth and Woodbury both use Larkspur data to offer lead-generation support, but Commonwealth also offers 401k Exchange for that purpose. Both also offer RFP and 401(k) provider search support—helping advisers with an established practice and those wanting to get into the retirement plan business.
So, why would an adviser select an independent broker/dealer over a wirehouse or a consortium of adviser specialists? Ultimately, it is a matter of choice for the adviser, but independent broker/dealers seem to be on a mission to develop services for this portion of the adviser market.
SIDEBAR:
Five questions to ask when considering affiliations:
- How much control do you want to have?
- Is it a good cultural fit?
- Where do you stand on the payout-versus-support tradeoff?
- Who can best help you win new clients?
- Who can do the most to help you keep clients?