Fred Barstein

The pros and cons of a benefit practice offering retirement plan services.

Fred Barstein on a market upheaval coming in the DC market.

Fred Barstein on how new advisers are critical to growth of DC market.

Forecasting the future through retirement wholesalers

Most experts are predicting massive consolidation among DC record keepers - with the big push just about to begin, especially with four national record keepers representing more than 100,000 defined contribution plans likely to change ownership in the next few months.

How are breakthrough innovations created? What is the process and can it be replicated or facilitated? These are the fundamental questions tackled by Frans Johansson in his seminal book, "The Medici Effect."

It is nearly impossible for an adviser to effectively help an employer manage their DC plan without doing what it takes to make them a functional fiduciary. Realizing that many advisers, or those that were traditionally called brokers, could not become named fiduciaries, others that could do so used it as a weapon in head-to-head competition.

The Hartford's recent announcement to divest its retirement division has more to do about the economy and the parent's corporate direction, perhaps instigated by an activist investor, than it does about the quality of its retirement business.

Over the past two years, fees charged by financial advisers to new mid- and large-market defined contribution/401(k) clients have been shrinking at an alarming rate. This decline is driven by a number of factors. As with many other trends, it is likely that deflationary pricing will move downmarket. More than ever, it is essential that advisers clearly define their value proposition to employers and participants who, for the first time, will be able to easily determine what they are paying as a result of the new disclosure regulations - or risk being commoditized competing on fees.

While some people justifiably claim that the defined contribution/401(k) market is mature, there's a school of thought that believes the market is about to go through radical changes. Primarily, a broad-based realization that DC plans will become the main retirement vehicle for the post-baby boom generation, causing greater scrutiny, focus and hopefully innovation for all involved.

Though the 401(k) and defined contribution market gets lots of attention from all sectors of society and has a significant amount of assets, there are only about 110 national providers and advisory firms focused on this market.

The focus of discussions in the defined contribution/401(k) world seems to have shifted overnight from process to outcomes.

Some experts are predicting that there will be fewer advisers focused on the 401(k)/defined contribution market. With greater competition, price pressure, more onerous regulations and increased fiduciary liability, that argument is understandable. But regardless of the pressure and challenges that the DC market poses, the number of elite advisers that focus on the DC market will double in the next five years because of the size of the opportunity.

You now have a strong advocate, retirement advisers. Read in the November issue of EBA as contributor Fred Barstein talks about the recent launch of the National Association of Plan Advisors, a sister organization of the ASPPA.

As successful and focused defined contribution retirement plan advisers continue to grow their businesses at a rapid pace, they logically look to hire salespeople to take advantage of the many opportunities coming their way.

It is certainly not news that most Americans are ill-prepared to retire with 70% income replacement. We can blame high fees, which the press and regulators seem to focus on, and a decade of low or negative returns, but the real problem is that most participants are not saving enough and are not actively engaged in the process of preparing for retirement. Then, some industry professionals are still implying that their services are free. But with sweeping disclosure regulations about to become law, that myth will be quickly debunked. It's time to debunk other myths and tell plan sponsors and participants the hard truth.

In case you have not noticed, there has been a flurry of regulatory activity surrounding defined contribution plans and DC advisers in particular. While there will be greater disclosure requirements, more advisers will be considered a fiduciary and it will be harder for advisers to represent a DC plan and the participants at the same time. Experienced DC advisers can use this activity to further distinguish themselves and grow their businesses.

Advisers have to be ready to demonstrate their value to more discerning buyers and focus on ways to run their practice more efficiently.

Defining and discovering "alpha" in participated-directed defined contribution retirement plans is perhaps the most difficult and important discussion in the industry today. Alpha in DC plans is very different than what asset managers pursue when they strive to beat their benchmarks, which is the hallmark of their abilities and ultimately defines their success. Alpha in DC plans is a measure of participants' success in replacing income within the plan.

In all sectors of the financial services industry, there is an almost maniacal quest for "alpha," or performing above the norm. Careers, fortunes and even companies are made or broken on their ability to deliver alpha.