Retirement Plan Advisors Face Era Of Consolidation

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy

A new report by Transamerica Retirement Solutions finds that over the next four years, retirement plan advisors will face an era of consolidation. They will either enter into partnerships or exclusive arrangements with retirement plans in an effort to boost defined contribution (DC) plan sales.

The mergers, on the record-keeping side particularly, will mean more firms will choose either to affiliate with big national financial advisors or operate independently, the report also said.

As many as 3,500 advisors generate the bulk of their revenue from retirement plan arrangements, but of that group approximately 800 large plan practices focus on retirement plans with $10 million or more in assets, according to the report.

Other regional firms will merge in order to develop a national presence, and practices with five or more advisors plus support staff will become commonplace, the report said.

“As practices consolidate and the number of specialized advisors grows, the market share of top advisory firms expands, and provider relationships with the right advisors and consultants become key drivers of plan sales for recordkeepers,” wrote Grace Basile, assistant director of market research for Transamerica Retirement Solutions (TRS).

The 23-page report, titled “Prescience 2017: Expert Opinions on the Future of Retirement Plans,” serves as a guide to what the financial services advisory industry can expect between now and 2017. Defined contribution plans are becoming the nation’s de facto retirement vehicles while defined benefit plans are slowly fading into obscurity.

More than 50 industry experts made up primarily of advisors and consultants contributed to the report, TRS said.

With consolidation, the advisory market will no longer be segmented by firm, geography or even advisor “status,” but by business model. Differentiation among advisors will hinge on staff, skill sets, the makeup of the client base, the role of the advisor in educating plan participants, the level of fiduciary services, investment policy and the mix of compensation, Basile wrote.

Fee benchmarking is “fundamentally changing the role of retirement plan advisors,” Basile also wrote.

“Fee compression is leading them to let go of less lucrative functions and to focus on tasks plan sponsors find more valuable,” she wrote. “Qualitative research suggests advisors whose primary value is to conduct service provider due diligence searches or to comparison shop do not have a sustainable business model.”

Basile also expects a slowdown in turnover among advisors to defined contribution plans as mergers and consolidations lead advisors to form larger practices. That may also lead to more frequent searches for advisors among defined benefit plans every three to five years.

With the impetus on workers to manage their own retirement plans either themselves or with the help of advisors, plan participants are more likely to use technology to ask for more plan personalization, said Stig Nybo, president of pension sales and distribution with TRS.

Mobile technologies will further this customization trend. Participants will expect to use apps with functions offering simpler and faster execution, and more frequent communication with advisors than what is possible today, the report said.

“Industry experts expect that the demand from participants to understand their retirement forecast will combine with advances in technology to allow for increased personalization,” Nybo said. “Retirement plan sponsors and advisors can expect to see a rise in innovative tools that participants need for greater control over their retirement planning.”

<p> Other innovations of which advisors should be aware are personal retirement readiness reports for participants, “retirement readiness alerts” broadcast over mobile devices, investment products that include income with a level of guarantees, more retirement transition counseling, and reports allowing committees to monitor retirement preparedness of employees, the TRS report said.

Nevin Adams, director of education and external relations for the Employee Benefit Research Institute, which was also consultant to the TRS report, said retirement planning is becoming an “intensely personal experience.”

Tools and technologies surrounding retirement preparation will, therefore, focus their design around individual outcomes, he added.

By 2017, the report said, 59 percent of retirement plan providers will offer participants a personalized report that tells them how much to save in order to reach a fully funded retirement, and 39 percent of plans will be able to change plan designs to enhance the retirement readiness of plan participants, the TRS report said.

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

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].