The 20 Rising Stars of Retirement Plan Advisors 2007 - (Page 8) RISING STARS 20 RETIREMENT PLAN ADVISORS JOB MARKET: LIMITED GROWTH AHEAD? BY KATE MCGREGOR WHILE THE GROWING number of maturing baby boomers has raised the profile of retirement plans and more and more future retirees find their retirement years underfunded, experts warn the market has matured. “New growth opportunities are limited for generalists and providers, but accomplished specialists could continue to grow,” says Phil Chirichotti, president of the Center for Due Diligence, an Illinois-based independent research and consulting firm. Growth is slowed because most of the big institutions are already using advisor services and new plan formation isn’t happening. “At the advisor level, the market has definitely tiered,” said Chirichotti. Advisors are separated by level of and quality of service, he explained. “Specialists are doing well, but the generalists are struggling,” he added. A recent study conducted by Brightwork Partners and published in May by MassMutual Retirement Services indicates that 62% of advised plans have had their current advisor for six years or less, but more importantly, that one in six of these middlle market plan sponsors has actively pursued other advisors with “an eye toward displacing the incumbent.” of it, creating a net that might be neutral,” said Don Trone, founder and director of the Center for Fiduciary Studies which trains and educates investment professionals on fiduciary and investment responsibilities. Trone, based on anecdotal evidence, believes that advisor numbers will be flat as the number of newcomers coming in to the field will just replace those established professionals leaving over concerns they might not have the stamina or knowledge to compete in this new environment. Moreover, industry insiders predict a migration of retail advisors to the institutional market because of the new fiduciary advisor safe harbor outlined in last year’s Pension Protection Act. As the Act has entitled retired employees to the same services they once received at work, there is no reason for them to hire a retail advisor. They can now stay with the institutional advisor, slowing the demand for retail advisors. FROM COMMISSION TO FEEBASED COMP In order to break into this market, however, advisors will need to adjust to institutional demands, such as fee transparency. According to the study, entitled The Successful Retirement Advisor: Quantitative Research Analyzing Plan Sponsors’ Needs and Experiences, plan sponsors tend to replace advisors for overcharging, failing to disclose their fee structure, lack of responsiveness to questions and concerns and lack of 401(k) proficiency. “New growth opportunities are limited for generalists and providers, but accomplished specialists could continue to grow.” These findings reveal that less sophisticated advisors may be vulnerable. “Fiduciary concerns have generated more shopping, benchmarking and fee comparisons,” noted CDD’s Chirichotti. TURNOVER AND MIGRATION “[The industry] is going to see a lot of [advisors] flow in and out 8 RETIREMENT PLAN ADVISORS RISING STARS As recently as five years ago, advisors earned their revenue from 12b-1 fees which are commissions generated on the annual revenue of mutual funds. Depending on the assets in the plan, the number of participants and the share class of the fund, advisors could earn tens of thousands of dollars per plan. But neither advisors, nor plan sponsors knew how much in commissions the advisor will receive. This ambiguity helped spark the shift toward a more transparent, fee-based system. Where 12b-1 fees are based on the investments and mutual funds in the plan, conversely, a fee-based compensation system can be SEPTEMBER 2007
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