403(b) Market Snapshot: Boutique and Specialist Advisors Dominate

Boutique defined contribution consultants and 403(b)-focused advisors are the “primary centers of influence” in winning new business in the trillion-dollar 403(b) market, according to a new report by Cerulli Associates.

The 403(b) market is only available to 501(c) (3) or nonprofit organizations. Organizations in that market include higher education institutions, health care, the K-12 school districts, charitable organizations and churches.

“Much like the 401(k) industry, the 403(b) market is gravitating toward professionals who offer specialization and expertise,” Cerulli said in a report titled Retirement Markets 2015: Growth Opportunities in Maturing Markets,” published earlier this year.

In the K-12 segment, 403(b)-focused advisors retain a 50 percent share of influence, boutique defined contribution consultants retain 25 percent share and plan sponsors and third-party administrators each retain 13 percent share.

“The K-12 sector continues to be reliant on individualized transaction between an advisor and a teacher,” the report said.

In the higher education segment, boutique defined contribution consultants retain a 38 percent share, followed by plans sponsors with 25 percent, and national consultants, traditional wealth management advisors and 403(b)-focused advisors each with 13 percent share, the report said.

In the health care segment, boutique consultants control 43 percent of the market, 403(b)-focused advisors retain 29 percent share and national consultants and plan sponsors each retain a 13 percent share, according to the Cerulli report.

Among churches, charities and research institutions, 403(b)-focused advisors hold a 38 percent share, followed by boutique defined contribution consultants with a 25 percent share and third-party administrators, traditional wealth management advisors and plan sponsors each holding a 13 percent share, the report said.

The 403(b) market is huge and the fight over its business means big money for record-keepers.

Data released by New York-based Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA-CREF) earlier this year indicate that the 403(b) market will grow to an estimated $1.8 trillion by 2018, up from $1.38 trillion in 2013, with higher education and health care delivering a “significant opportunity for advisors.”

“Only half of health care organizations and one-third of those in higher education use an advisor or consultant for 403(b) plan design and compliance,” TIAA-CREF said.

Nonprofit organizations rely more heavily on attractive benefits like retirement plans, medical coverage and subsidized insurance coverage to lure top talent compared with the private sector which can attract managers and skilled labor through higher salaries.

More than half of all 403(b) plan sponsors expect between 10 percent and 20 percent of their workforce to retire in the next five years, according to a 2013 survey conducted by the Plan Sponsor Council of America and the Principal Financial Group.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].