MOST MARKET PROCRASTINATORS rarely get called out, especially by themselves.  So at the risk of being wrong, we are proud to report that most of our 2007 predictions were right on with one caveat – nothing really new happened last year.  The effects of the PPA, litigation and Washington’s move to more fee disclosure and transparency were major themes in 2007, but it all started in 2006 or before.  Meanwhile, the entire industry waited for more provider consolidation and for plan sponsors to do something – anything.  Absent Hartford’s last-minute fireworks (SunLife [MFS] and the Princeton Retirement Group [outsourcing business]) 2007 was very forgettable.  So here were the themes we predicted would dominant in 2007:

1. Continued “DB-ization” of DC Plans
2. Focus on the Participant
3. Focus on Fees and Transparency
4. Market Consolidation:
   • Record
   • Advisors
5. Levelized Comp
6. Everyone is a Fiduciary
7. Institutional Money Management Move Down Market
8. Focus on Asset Allocation

Will 2008 bring more action?  Who knows, but if it does, here’s where it will happen:

• Sponsor Apathy – Though sponsors are concerned about their fiduciary liability, the real switch rate was 5-6%.  Is there anything that will cause more movement? Doubtful, so look for more…
• Provider Consolidation – Yes, and more of it.  Much more.
• Leadership Void – There are quite a few major providers with no or newly appointed leaders including Hewitt, JP Morgan, Fidelity, T Rowe, 401kCompany (Schwab), Nationwide and Prudential.  Doubtful that the new guard of the major record keepers will actually step up and do something significant.  Look for at least one interloper to make major strides in 2008.
• Year of the Advisor – While sponsors had little appetite to change record keepers, more sponsors than ever hired experienced advisors rather than relying on their direct provider or golfing buddy aka blind squirrel.  This trend will continue as plan compensation for advisors gets smaller.
• Rise of TPAs and RIAs – Advisors should take heed: sponsors want consulting and plan design plus transparency and advice.  TPAs and RIAs are primed to take advantage and will see their market share increase in 2008.
• Transparency & Fee Disclosure – Of course, but when will we admit that the elephant in the living room is that, if insurance companies had to market price all of their current plans, only a few would survive, barely.  Sponsor apathy should keep the elephant safe for a few more years.
• Year of the Participant – If we keep writing it, we have to be right eventually.  When will the industry actually realize that the real client is the one paying the bills?  And when will the industry realize it’s not about rollovers, it’s about wealth management; and it’s not about retirement income, it’s about financial planning by an advisor? There will be a lot of smoke but no fire in 2008.

• Rise of Asset Allocation Funds – Though all asset allocation funds (target date or risk based) are not created equal, even the worst of them (you know who you are) perform better than participants making their own choices.  The question is when will the market demand that record keepers with proprietary AA funds open up?  Big Investment Only shops are asking that very question.  Look for a higher percentage of cash flow going into assets allocations funds led by the proprietary investments of record keepers.
• Fiduciary Status– Only wire-houses are still in denial that their advisors are fiduciaries.  Will the PPA fiduciary status take hold?  We think not.
• Broker Dealers – Broker dealers have become more interested in the retirement market which will continue in 2008, because of the rollover market.  The one retirement focused broker dealer, NRP, has made great strides and offers high payouts and good support, but the question for advisors being pushed to sell their practice for paper is: “Will there a pot of gold at the end of the NRP rainbow?”

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