Industry Insight from Fred Barstein
Emergence of the Elite 5,000 DC Advisors

As if from a haze, the “Elite 5,000” defined contribution (DC) advisors are emerging from the mass of financial advisors, driven in part by the awakening of plan sponsors.  They are realizing that hiring an experienced DC advisor is the most important decision they can make for their retirement plan.  Understanding this phenomenon will be the key to success for all players in the 401(k) and DC industry as advisors finally start to take control from record keepers.

Using the healthcare system as an analogy, DC record keepers are the hospitals, the asset managers are the pharmaceuticals, and the advisors are the doctors.  Based on the 401kExchange Opportunity Index, plan sponsors are signaling that changing hospitals will do little to help mainly because they are performing well.  But moving from a family doctor to a specialist to perform heart surgery will make a dramatic difference, as will a change in prescriptions.  Sponsors are driven less by fear of fiduciary liability, especially in the smaller markets, and more by concern that their employees and fellow workers will not be able to retire successfully under the current participant driven system.  Clearly advisors will have the most dramatic impact and like doctors, they have the most personal contact which is a big psychological advantage.

There are 300,000 or so financial advisors actively serving the public, half have at least one DC plan, another half have at least three DC plans, and 15,000 or 5% have more than five plans signaling that they are starting to get serious about this business.  Of these 15,000 DC advisors, 2,500 have more than 25 plans or more than $100 million under management – so called “Masters” with a subset of 500 “PhD’s” who only serve the +$20 million.  The Elite 5,000 consists of the Masters, PhD’s and another 2,500 advisors who have 10+ plans or +$50 million and are growing their practices rapidly.  The Elite 5,000 are distancing themselves from the pack by doubling their book of business over the past 3 years, while defining this relatively new profession.  As the market uptick generates more revenue even in a deflationary cycle, and as they get better resources, this group is becoming armed and dangerous. 

Before the Elite 5,000 start celebrating, they need to realize that they are really just at the beginning of this new profession.  Most have only a high school education in managing and running a business like a true entrepreneur.  It’s still difficult for most to easily and quickly communicate their status to plan sponsor prospects who are mostly clueless.  No DC advisor to our knowledge has established a model that helps participants substantially improve results within and outside the DC plan, and has the data to prove it.  Though the concept of progress, not perfection, applies here, it is nonetheless important to define 401kHeaven which is achieved only by helping someone else get there.

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