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 Industry
Insight from Fred Barstein
Business and Compensation
Model Options for DC Advisors
Whether it’s
pending regulations, the maturation of Defined
Contribution (DC) advisors, or the recent acquisition of
NRP by LPL, more than ever experienced DC advisors are
reviewing their current business and compensation
models.
With choices and changes
in the market and regulatory environment growing,
significant DC advisor movement over the next three to
12 months is likely.
While no one choice is
right for all DC advisors, not reviewing and
understanding all the options is the absolute worst
decision a DC advisor can make.
The first
decision, which will affect many of the other decisions, is
compensation structure.
The options include
commission, fee based, or hybrid which includes both models.
Over the last three years,
most Mid Market ($10-$100 million) advisors have moved to
fee based compensation using a hybrid model so they can
collect commissions on current business.
While many advisors chaff
under the rules and restrictions of a broker dealer which
have little applicability to DC practices, most smaller
plans include 12(b)(1) fees, and only recently have major
small market providers allowed for fee based compensation
models.
DC advisors with thriving
individual business may need to retain their Finra license.
If an advisor wants to continue
receiving commissions, they have to choose the type of
broker dealer they want to affiliate with:
Wirehouses
provide brand, training, administrative and sometimes DC
support, and intra-company referrals with a wide array of
investment products.
On the downside they also have
low payouts and more restrictions, especially when it comes
to Erisa fiduciaries.
Independents offer a higher
payout, but include little of the way of benefits when
compared to a wirehouse other than a wide array of
investment products and some DC support.
Specialty BD’s have the tools,
support, flexibility, and sensitivity DC advisors crave, but
they have limited brand and access to non-DC products.
Specialty options also include
Gallagher, part of a P&C firm, Sageview which spun out of
Willis, and 401(k) Advisors which is a pure RIA and makes
their tools and support available to any advisor under their
RPAG division.
Aligning with a P&C,
Healthcare, or Wealth Management practice may force the
decision.
Some industry experts say that all DC advisors will need to
become fee based with pending SEC 12(b)(1) regulations, as
well as heightened awareness on fees under 408(b)(2) and the
pressure towards fiduciary status.
Wirehouses are loosening restrictions on advisors
that want to be an Erisa fiduciary with a few beefing up
support resources.
Independents like Raymond James, LPL, and Securities of
America (Ameriprise) are building brand offering greater
support. Some
specialty BD’s are getting very strong with more advisors
using RPAG tools and NRP soon to be part of LPL.
Cross-selling is the Holy Grail for DC advisors as
more P&C and healthcare firms want to deepen their
relationships with clients.
But regardless of the decision, isn’t it hypocritical
for a DC advisor to recommend that plan sponsors prudently
compare record keepers and investments in black and white if
they do not follow their own advice?
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