Until recently in the 401(k) industry, plan sponsors favored financial advisers who could provide them with open architecture platforms and assist with fund selection.
These days, as retirement plans become increasingly specialized, it's going to take much more than that to pick up some business as a plan adviser, according to advisers who participated Monday in a panel at the Society of Professional Asset Managers and Record Keepers' national conference in Washington.
“If you look at the evolution of our practice, not that long ago, providing liquidity was a strength, as were open architecture, helping to select funds and providing portfolio analytics,” said Edward M. Lynch Jr., founder at Dietz & Lynch Capital. “If you think about evolution, it's a process in which what was initially a strength becomes commonplace. There's no longer strength in those differentiators.”
As more advisers continue to step up their services, those who want to stand out need to ramp up the resources they can provide to plan sponsors.
Panelist Mario A. Lepore II, an adviser with UBS Financial Services Inc., observed that boosting participation in the plan is one of the best ways to stand out among other competitors.
“The process we implement begins at the plan level and makes sure the plan is useful enough to the majority of the employees there,” he said. Mr. Lepore's practice, which specializes in retirement plans, works with a group of advisers who cover the participants and ensure that they're using qualified default investments where appropriate and that they're using the right asset allocation.
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To eliminate a conflict of interest, these participant-focused advisers are separate from Mr. Lepore's work with plans, and neither group receives any compensation from work done by the other.
“There is a Chinese wall between the two of us,” he added.
Plan sponsors are also catching on to the different flavors of fiduciary: 3(21), which allows the adviser to become a co-fiduciary and share responsibilities with the plan sponsor, and 3(38) investment manager, which places the fiduciary duty on the adviser — although the plan sponsor is still responsible for prudent selection of that adviser.
“In the due diligence we've done, it's more the large plan client — $75 million in assets — that wants to know what the [fiduciary] capabilities are,” said Trisha Brambley, president of Retirement Playbook Inc., a firm that provides financial education to employees.
Mr. Lepore agreed. “More plan sponsors are going to look for all of us to provide those services and sign on as either a 3(21) or 3(38),” he said. “From the standpoint of the plan sponsor, it's their involvement, what they want to be and how they want to be involved.”
