TD Ameritrade and Pershing are making moves to win RIA 401(k) assets

Brooke’s Note: RIA custodians have made claims on owning virtually every niche in the business. But oddly none of them wants to call itself the custodian of choice for RIAs favoring the 401(k) market. There are signs that that is starting to change. I heard murmurs from TD Ameritrade, Pershing and Fidelity that the advisors who use them for custody are waking up to the opportunities presented by the 401(k) market and the accompanying IRA rollover market — each with about $2.7 trillion of assets. The custodians are starting to hustle to support this effort much, much better.

TD Ameritrade Institutional became the latest custodian bidding to become a better place for RIAs to custody their 401(k) assets, when it announced last month that it is rolling out a new platform of services and opened its technology platform to RIAs.

“We think it’s time to ramp it up,” says Skip Schweiss, president of TD Ameritrade Trust Co. “There a much larger number showing up and saying: This is something I want to learn more about. It’s raining regulations and it’s all pointing toward getting advice from fiduciary advisors.”

TD Ameritrade’s move follows a flurry of action by other custodians trying to grab a share of the under-served [at least by RIAs] market. Earlier this year Fidelity created a bundled 401(k) specific to the RIA market. Schwab, meanwhile, has been making efforts to connect RIAs to third-party administrators, and Pershing is set to release a study on how advisors who serve 401(k) plan sponsors win greater share of client wallets.

Dark horse

All four custodians are taking on a dark horse in the market, Matrix Financial Solutions of Denver, Colo., a clearing and custody firm that has been gaining increasing traction in the 401(k) business since 2007. Matrix has $124 billion of assets in custody – including $30 billion of retirement assets — from advisors in all channels. It has clients from Merrill Lynch and UBS, for instance.

The competition in the market is being driven by advisors’ interest, which in turn is coming as the Department of Labor steps up its efforts to reform the 401(k) system, in part by greater disclosure of fees. See:Why the DOL’s massive new 401(k) disclosure requirements are a 'very, very big deal’

The DOL is also considering a proposal that might steer more business to fiduciary advisors. See: Why the DOL’s proposed 401(k) rules could ding brokers and leave the spoils to RIAs

It’s a game of baby steps for custodians trying to help RIAs get a grip in the 401(k) business, according to Craig Watanabe, principal with Penniall & Associates, Inc. of Pasadena, Calif., which has about $600 million in 401(k) assets under management.

“Based on sheer numbers of plans — not assets — most 401(k) advisers have less than five plans and are not retirement specialists. Many of TD Ameritrade Institutional’s RIA clients fall into this category, and this appears to be their target market.”

Consolidate sales teams

TD Ameritrade says it is going to match RIAs with plan record keepers, educate advisors on the business, consolidate its sales teams for 401(k) and RIA business, and create the ability to use a self-directed brokerage in a 401(k) account and manage it on Veo, the custodian’s technology platform.

The latter capability will allow RIAs to electronically trade securities, rebalance portfolios, deduct management fees and automatically download SDBA account information into their portfolio management and accounting systems.

The TPA referral is an unexciting but vital first part of the process in jumping into the 401k business, according to Schweiss.

“Their eyes glaze over a little bit but we’ve narrowed the list to about a dozen TPAs around the country that are the best for those advisors geographically,” he says.

Pershing will soon release a study on the subject of 401(k) business based on a survey of 2,500 small business owners and 800 RIAs. It shows that advisors offering 401(k)s in their practice do better than ones who don’t and tend to win a greater percentage of a client’s assets.

Pershing also has a new section of its website dedicated to the subject called Retirement Power Play.

Both efforts are born out of a sense of rising need.

Critical space

“I think the 401(k) space is critical going forward. We see the opportunity to move upmarket,” says Robert Cirrotti, director, retirement and long-term savings products for Pershing.

Robert Cirotti: I think the 401k
space is critical going forward. We
see the opportunity to move upmarket

Fidelity Institutional Wealth Services announced new 401(k) services for RIAs on April 13 – a modified version of its existing broker-sold Fidelity Advisor 401(k) bundled solution in use [at the time] by 3,771 plans with about $25 billion of assets under administration. It includes a referral network for matching TPAs and RIAs.

Steve Austin, spokesman for Fidelity, says that the effort is appreciated by advisors.

“Since its launch in March of this year, the program has been very well received, with immensely positive feedback from RIAs who use it. Unfortunately, it is premature for us to discuss any details at this point.” See:Fidelity brings its 401(k) muscle to RIAs with new product

Schwab Advisor Services folded its Advantage conference for third-party administrators into its IMPACT 2010 conference this year in Boston [and about 120 of them came] as an effort to create cross-pollination with RIAs – and the effort has importance to the company, according to its spokesman, Michael Cianfrocca.

He said about 1,500 of his company’s RIA clients work with retirement products or services offered by Schwab Retirement Business Services — the part of Schwab that works with TPA clients.

“Schwab continues to help advisors maximize opportunities in the 401(k) market and it is an ongoing focus for us.”

In their focus on education, the custodians seem to have their priorities in order, according to Watanabe.

Daunting complexities

“ERISA compliance can be a minefield and navigating the complexities is daunting. The second step is bringing in help and fostering relationships between the plan advisers and third-party administrators.”

The custodians are competing for advisors’ 401(k) business in a number of areas from staying out of compliance trouble to making it all work efficiently.

The embrace of outside recordkeepers helps distinguish TD from its bigger competitors, Schweiss says.

“Schwab and Fidelity have their own record-keeping service and financial advice,” he says. “We don’t compete against the advisor or the TPA.”

But Richard H. Linton Jr., formerly executive vice president, Fidelity Investments Institutional Services Company, Inc. said in an April press release that his company’s offering has advantages to RIAs.

Cliff D’Amato: It’s a great business
for us.

“We’re making it easy for RIAs to focus on doing what they do best — advising their clients — while Fidelity manages the other aspects of the 401(k) equation,” he said in the release at that time. “This opens up a world of opportunity for RIAs looking to expand their practices by advising 401(k) plan sponsors.” Linton left the firm in July for Merrill Lynch/Bank of America, according to Mutual Fund Wire. He was replaced by Mike Harger who is now head of the retirement/401(k) group for Fidelity Investments Institutional Services.

And Watanabe expresses concern about one aspect of TD’s 401(k) offering.

Self-directed perils

“Most retirement specialists shun self-directed brokerage accounts in favor of model portfolios or their own managed fund options — collective investment funds or mutual funds. SBDAs can be a significant fiduciary liability and none of our plans have SBDAs.”

Watanabe keeps substantial non-retirement assets with TD but keeps 401(k) assets at Matrix.

Cliff D’Amato, CEO of Matrix Financial Solutions says his company’s efforts to offer more for 401(k) advisors are bearing fruit.

“It’s a great business for us, and we believe the new regulations with full fee disclosure is surely going to help us,” he says.

He adds that his company was able to create Matrix Univeristy and 401(k) tools on the strength of its purchase of Prima Capital in 2007, whose executives had the necessary knowledge to educate advisors deeply on the subject.

Lower fees?

But Jessica Searcy Maldonado, vice president of Searcy Financial Services Inc. of Overland Park, Kan. says that she is – despite reviewing Matrix — sold on TD Ameritrade as her 401k custodian – both from a cost and transparency standpoint.

“I looked at Fidelity, Schwab, Matrix and TD Ameritrade before I decided where to put our 401k business; TD has the lower fees.”

John Moody, president of Matrix Financial Solutions, says his company seeks to compete on more than fees.

“We’re not always the low-cost provider but we have strong technology, fewer mistakes and strong service,” he says.

Note: This article was changed to reflect the fact that Richard Linton is no longer employed by Fidelity.