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How Schwab is gearing up its RIAs to fight for 401(k) assets

The San Francisco custodian's deal with fi360 will help advisors meet increasing demand from employers that their advisors be fiduciaries

Author Lisa Shidler May 16, 2012 at 3:17 PM
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Debbie Pritchard: Most of the advisors we're working with are all talking to us about becoming 3(38)s.

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Elmer Rich III

Elmer Rich III

May 16, 2012 — 10:08 PM

Good luck on this. The DC market is hyper-saturated and hyper-competitive. Many established firms are seeing negative growth, erosion of revenue, increases in services demands, etc.

The 401(k) market has passed its peak. It’s all about capturing rollover assets in IRAs now. That’s where the real profit has always been anyway.

With the inceased regulatory and fee demands this is likely a poor market for RIAs and not optimal to direct resources away from the core individual, wealth management business. Schwab may want the bigger asset pool custody assets — it may be off strategy for most RIAs.

Brooke Southall

Brooke Southall

May 16, 2012 — 11:00 PM

Hi Elmer,

Thanks as always for offering an interesting dissenting opinion.

I want to challenge you on two points. First, you say that the market is saturated. That may be true in the sense that there are many competitors but my understanding is that accounts are, in a sense, more up for grabs than they have been in a long time. Legacy providers are vulnerable because of what they will have to disclose under new DOL rules. RIAs can exploit this.

Also, you mention rollovers. I have heard many people say that the best rollover strategy is to advise the 401(k) plan itself to have the inside track for the eventual rollover.

Maybe you can let me know what I don’t know from my non-practitioners perch about wheere my understandings aren’t so clear cut.


Elmer Rich

Elmer Rich

May 18, 2012 — 4:32 PM

We don’t offer disent but experiences based on our work in the field for over 20 years and daily with retirement specialized clients.

Let’s take the first point – underestimating the inertia and power of existing dominant market share holders is dangerous and would need extensive data to support. If you look at the data on switching you see it is very small and apparently dropping.

The idea that new regulations will throw many new plans into play is a hypothesis that would need to be tested before betting ones resources and business plan.

In any case you can expect the dominant firms to fiercely protect their market share with the ample resources that business provides. To hope otherwise is a “faith-based” business hope.

On advantages of providing rollover services to existing plan clients, the jury is out as well. In any case, you should do some research because there have been successful lawsuits against such a thing and current regs say getting paid for plan service prevents an advisor from doing so on rollovers.

Bottom line #1— Hope, passion and hype are not the basis for a sound strategy entering a new market.

Bottom line #2 — Show us the data.

Sheldon M. Geller

Sheldon M. Geller

July 15, 2012 — 7:04 PM

With all due respect, I concur with Brooke, to the extent that I beleive that there will be a wholesale migration, albeit over time, from non-fiduciary service providers to fiduciary providers, common law as well ERISA. Further, plan sponsors will, as they are made aware and further educated, retain fiduciary advisors as an overlay service for non-fiduciary service provider platforms.

Advisors with ERISA experience should be in a position to capture plan assets notwithstanding the saturation and maturation of the 401(k) plan marketplace. There will always be growth opportunities in the 401(k) plan marketplace for talented and differentiated fiduciary advisors as they compete effectively with, in effect, sales people.

Moverover, managing IRA custodial assets to the exclusion of the 401(k) plan whence it came, is a tough business as the average rollover is small and thus resulting in minimal fes. The mutual fund providers would appear to be better positioned to capture rollover assets more effectively than advisors. Their advertising and distribution channels are rather robust.

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