Registered Investment Advisors are “punching beneath their weight” when it comes to cracking the retirement plan market, according to Skip Schweiss, director of retirement services for TD Ameritrade Institutional, at the custodian’s national conference in San Diego last week.
Brokerages and asset managers have a large presence in the space, but smaller RIAs have yet to crack the code; Schweiss said only an estimated 10 percent of investment advisors have retirement plan sponsors as clients, yet they bring competitive advantages over the larger brokerages and asset management firms.
“You can almost always cut the cost of a retirement plan (for the plan sponsor) in half, just through better investment options,” he said. Plan sponsors also have a duty to their employees to be sensitive to fees.
Consider, he said, the 401(k) market totals $4.7 trillion, about 20 percent of all retirement assets. Some estimates suggest the market will grow to $7 trillion by 2019.
Out of 550,000 retirement plans in the U.S., 90 percent have fewer than 100 employees and 94 percent have less than $10 million in the plan. “These are small businesses in the communities” that independent investment advisors serve, he said.
“If you can cut the cost by half and put in better investment options, and only 10 percent of advisors are competing with you, it’s a blue ocean opportunity,” he said.
As a fiduciary, advising a plan sponsor isn't much different than an individual. Advisors bring an investment lineup to the sponsor, which can include an advisors’ own model portfolios, a selection of mutual funds or ETFs across asset classes, or a brokerage window for employees who want to pick their own stocks and bonds.
It is, of course, more complicated than that. Advisors need plan administration and record-keeping services, and operating under the Department of Labor’s ERISA standards for workplace retirement plans comes with some nuances. Firms like TD Ameritrade Institutional can help advisors clear some of those hurdles, Schweiss said.
More importantly, becoming an advisor to a small company’s retirement plan helps in two ways: It’s a defensive move, because clients who have a workplace retirement advisor might be lured away by that competitor, and it’s an offensive move, as advisors might be able to bring some employees in the workplace plan on as individual clients.
