2013
Practice Benchmarking Survey

2013 PLANADVISER Practice Benchmarking Survey: Evaluating your peer group to benchmark your practice

The 2013 PLANADVISER Practice Benchmarking Survey (previously known as the PLANADVISER Adviser Experience Survey) sheds important light on how retirement plan advisers run their businesses—and the value they strive to bring to their plan sponsor clients and participants.

Interestingly, following the 403(b)(2) fee disclosure requirement in 2012, the biggest change in advisers’ concerns about their practices involved profitability and fee compression. In this year’s survey, 6.4% of advisers said they were worried about profitability—a 57.5% increase from the 4.1% who shared this concern in 2012, and 9.8% noted concern about fee compression—a 29.0% bump from 7.6% in 2012.

Since the Department of Labor (DOL) postponed its decision on a new definition of “fiduciary,” there has been a significant drop in the number of advisers for whom compliance and fiduciary issues are top of mind; this statistic declined by 31.1% this year, to 6.3%, down from 9.2% in 2012. Also, advisers’ faith in the strength of the economy seems to be improving, as only 2.9% called the overall economy a concern, a 53.0% decline from 6.1% in 2012.

After many years of advisers breaking from national, full-service wirehouses to go independent, this year survey respondents showed a slight reversal of that trend: The largest portion of advisers (24.2%) are affiliated with independent broker/dealers (B/Ds), down from the 26.0% who had that affiliation in 2012. The next most prevalent affiliation is as a registered investment adviser (RIA)—the case for 23.1%—up from 19.7% in 2012. Next, 19.1% are dually registered as both an RIA and B/D, up from 17.2% in 2012. Thus, almost half (42.2%) have chosen the RIA model and operate in some sort of fee-only capacity.

Those associated with a national, full-service wirehouse ticked up to 15.3% from 15.0% last year. Advisers affiliated with an insurance or bank B/D decreased to 5.9%, from 8.2% in 2012. Being affiliated with a regional broker/dealer increased but remains the least popular, with 4.7% of advisers choosing this route, up from 3.2% in 2012.

Although a wide variety of sizes of adviser practices responded to the survey, more than one-quarter (27.7%) clearly have developed efficient models, as they serve more than 75 qualified plan clients.

A team model is favored by the majority, with 47.5% running a team in one location and 26.4%, a team practice in multiple office locations. Only 26.1% have an individual adviser practice.

Exactly half (50.0%) serve as broker of record on retirement plans, and 22.4% sometimes do. Nearly a third (27.6%) never serve as broker of record. The majority of advisers set goals and govern their practice via a written business plan; 60.4% employ this formality, up from 58.4% in 2012.

More advisers are plan fiduciaries, fewer appear concerned about fiduciary issues, and it is the No. 3 area picked for significant future growth. Fifty-seven percent act as a 3(21) fiduciary, on par with the 57.4% who did so in 2012.

More advisers are plan fiduciaries, fewer appear concerned about fiduciary issues, and it is the No. 3 area picked for significant future growth. More advisers (22.9%) are acting as a 3(38) fiduciary this year, up from 19.7% in 2012. Less than a quarter (22.3%) do not provide any fiduciary services to their plans. Overall, 77.7% of advisers are fiduciaries to their plan clients, up from 72.4% in 2012, but slightly fewer are fiduciaries to plan participants—33.5% this year, down from 34% in 2012.

Compliance/fiduciary issues was the No. 2 concern for advisers last year, ranked first by 9.2%, but this year it is only sixth—6.3% of advisers picked it as their top concern, and, similar to last year, nearly 13% see it as the most significant growth area for their practices.

The B/D most frequently used is LPL (13.2%), followed by Morgan Stanley Smith Barney (5.8%), UBS Financial Services (4.4%), Merrill Lynch (4.2%), Wells Fargo Advisors’ First Clearing LLC (3.6%) and NFP (3.0%). 

Asked what benefits they receive from their broker/dealer, 52.2% of advisers responded, compliance oversight, although this percentage has fallen markedly, from 62.6% in 2012. Next up: retirement plan industry expertise and tools (38.8%), technology and information technology (IT) support (30.4%), investment due diligence (30.2%), brand name recognition (26.3%), marketing support (23.3%), co-fiduciary support (21.8%) and lead generation (5.4%).

The most popular custodian among advisers is Schwab (26.6%), followed by Fidelity’s NFS (23.4%), TD Ameritrade and Pershing (which tied at 15.7% usage), Matrix (11.4%) and LPL (11.1%).

In terms of frequency of communication with plan participants, the most in-person group meetings are those held twice a year, by 32.1% of advisers. The greatest percentage of advisers (19.9%) also schedule in-person individual meetings twice a year. Nearly one in five send emails to participants every quarter. Webcasts are the least common offering, but, once advisers commit to them, they, most commonly, stage webcasts every quarter (9.9%).

When meeting with plan sponsors, advisers most frequently discuss investments, with 19.9% of them piloting such discussions twice a year. Plan design and compliance sit squarely on advisers’ radar; 19.4% address these topics with plan sponsors every quarter. Recordkeeping and third-party administrator (TPA) issues are brought up the least often—just once per quarter, by 9.9%.

The most common services that advisers provide to their plan sponsor clients start with ongoing investment monitoring (offered by 94.0%), then attendance at investment and retirement plan committee meetings (92.3%), investment policy statement (IPS) design (90.2%), manager searches and fund replacements (90.2%), fiduciary and fund governance (88.9%), provider fee analysis (87.0%), defined contribution (DC) plan design (86%), benchmarking plan providers (85.1%), compliance reviews (84.9%), ongoing employee group meetings (84.2%), written service contracts (84.2%), enrollment meetings (83.5%), and vendor and fee reviews (78.6%).

As in prior years, finding new business is all about referrals, referrals, referrals—59.2% source new clients from other professionals or strategic relationships, and 25.8% obtain referrals via existing clients. The next most prevalent methods of prospecting are cold calls (8.0%), seminars (2.1%), email marketing/newsletters (1.0%) and direct mail (0.8%).

The importance of referrals was highlighted in responses advisers gave when asked what they deemed the most significant growth strategy for their practice in 2014; 14.4% cited referrals—a 114.5% increase from the 6.7% who cited them in last year’s survey.

Fee compression appears to be a reality. Across all hypothetical plan sizes, more advisers this year charge less than 5 basis points, and fewer charge more than 50 basis points. Fee compression jumped from the No. 4 concern last year, when 7.6% of advisers picked it as their top concern, to the No. 2 slot this year, when 9.8% of advisers cited it as their first.