RIAs Dominate Retirement Plan Market

Retirement specialists comprise only 5 percent of the total advisor population, but control 44 percent of the total advisor-sold defined contribution market, according to retirement market research published by Cerulli Associates in Boston.

Many of those are registered investment advisors (RIAs), who are well suited to serve the defined contribution market because of their independence, “fiduciary mindset” and “transparent positioning,” the report concluded.

As a result, RIAs fall naturally into the “retirement specialist” category, which refer to advisors that generate more than 50 percent of revenue from retirement plans. They wield significant influence in the small- and mid-sized private defined contribution market.

“This (RIA) structure aligns well with the concerns of plan sponsors,” Cerulli researchers wrote in a note to clients last month. Cerulli also estimated that the RIA channel is comprised of 30,789 individual RIAs out of the 311,681 advisors working in the United States.

Within the RIA channel, there are 2,514 individual advisors working in 443 advisory companies that can be defined as retirement specialists, Cerulli estimated. Those 2,514 advisors make up 8.2 percent of all advisors in the RIA channel.

Another 4,657 individual advisors — 15.1 percent of advisors in the RIA channel — working for 1,018 advisories generate between 15 and 49 percent of revenue from retirement plans. And 23,618 individual advisors — or 76.7 percent of advisors in the RIA channel — toil for advisories that generate less than 15 percent of revenues from retirement plans, Cerulli concluded.

Excluding the insurance channel, at the end of last year there were an estimated 2,400 specialist advisor practices in the bank, wire house, regional broker-dealer, intendent broker-dealer and dually registered advisor channels focused on the defined contribution market.

Those 2,400 retirement specialists influenced $587 billion in defined contribution assets, Cerulli estimated.

“The retirement specialist advisor, a category within the broader financial advisor universe, has emerged as a powerful force in driving DC assets in the small and midsized plan asset segments,” said Jessica Sclafani, associate director at Cerulli, in a news release.

As a result, “retirement specialist advisors represent an important opportunity for defined contribution providers and defined contribution investment only asset managers,” she said.

Insurance advisors are excluded from the calculations because gathering defined contribution assets is tangential to their primary focus, insurance.

The data is contained in a report titled “Defined Contribution Distribution 2015: Addressing Specialist Advisors in the Small and Mid-Sized Plan Segments.”

Cerulli researchers advise retirement plan managers to cultivate retirement specialists as “these longer-tenured and experienced advisors will retire during the next decade.”

Cerulli researchers also indicate that some defined contribution investment-only managers have chosen to the focus on the “next-generation” of retirement specialist advisor, what Cerulli calls the “emerging retirement specialist.”

Emerging retirement specialists, or the 4,657 individual advisors in the 1,018 advisories that generate between 15 percent and 49 percent of their revenue from retirement plans, are neither easy to identify nor pin down.

One leading indicator of whether an advisor might be an emerging retirement specialist is the amount of time an advisor spends marketing to retirement plans. “It is also helpful to look at the number of DC plans sold during the trailing 12 months,” Cerulli researchers wrote.

The retirement market is enormous — and growing — as the pay-as-you-go model becomes the de facto method used by employers to fund the retirement of their respective employee populations.

At the end of last year, private defined contribution assets had amassed nearly $5.2 trillion, a 10 percent increase from the end of 2013, according mutual fund industry data. Of that $5.2 trillion, $4.7 trillion or 90 percent, were classified as 401(k) assets.

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].