What exactly is doable for an RIA in the 401(k) business?

Brooke’s Note: Hopefully this column provokes some questions, answers and will swell the ranks of RIAs who will add to our webcast discussion on Thursday.

First the bad news.

The 401(k) business is unkind to amateurs. You can blunder along as a personal advisor, to some extent, by being reasonably prudent about investing and in your choice of partners.

Not so the defined contribution plan business.

For one thing, the 401(k) dodge is a numbers game in which you are, in many cases, selling advice in bulk. The number of people you are serving can be in the hundreds, thousands, tens of thousands — maybe even hundreds of thousands. See: How uncomfortable questions from prospects led a 'small’ $12-billion 401(k) advisory RIA to finally say yes after eight years of rebuking overtures from a $120-billion AUA RIA.

Not only is this a big responsibility and a daunting organizational task, there is a possibility that these people are paying you slender fees. In other words, your costs really start to matter and you can end up doing lots of work for little reward. You are now competing with Fidelity Investments and Vanguard Group Inc. at something they are unequivocally good at.

The additional bad news is that even if you manage to make money without completely diluting your time in a complicated new business, you could quickly lose it all in a lawsuit. If the SEC has a reputation for being understanding with RIAs, the ERISA enforcers at the Labor Department do not. Truth be told, the DOL is only getting tougher post-Enron, post-2008 and there are lawsuits out there to prove it. See: 9 things advisors to 401(k) plans must do to keep clients out of hot water.

Trillions and trillions

Now the good news.

The number of providers — newcomers and incumbents alike — looking to make the 401(k) business a more turnkey operation for RIAs is on the rise — arguably eliminating complications as fast or faster than they are multiplying. See: RIAs are starting to create their own 401(k) companies as alternatives to John Hancock and The Principal.

The 401(k) business has powerful weapons in its arsenal, too, like ETF platforms. See: Why ETF sponsors are ponying up big fees to get on Schwab’s ETF OneSource in a bid for access to ticket-averse RIAs.

These are glad tidings indeed because the average 401k) participant has $100,000. Last year participants ponied up a cumulative $26 billion a month for a total of $315 billion. The industry had $4.2 trillion as of year-end 2013 — and is likely knocking on the $5 trillion door right now. See: Fidelity Investments recognizes power of RIAs in 401(k) market and has increased efforts to work with advisors.

That’s critical mass. That’s fairly recession-proof asset flow.

What’s bad for brokers…

And there’s potentially even better news than that: For all the headaches that the DOL may pose for RIAs, the regulator promises to be much tougher on brokers who traditionally have held a competitive edge in the business. Many of them will simply need to give way because they are not prepared to accept the accompanying exposure to fiduciary liability. See: Do 401(k) assets require all fiduciary care all the time?.

Here’s the unknown factor: Where does any particular RIA fit on the curve of competition, complication and opportunity. Is this a wagon to jump on or jump out of the way of?

These are the questions we will address on behalf of financial advisors this Thursday in our webinar by directing those inquiries to the right spectrum of experts: Jessica Moldando of Searcy Financial Services Inc., Michael J. Francis of Francis Investment Counsel LLC and Rick Meigs of 401khelpcenter.com LLC. It will take place Thursday, Oct. 16 at 4 p.m. PDT, 3 p.m. CDT and 1 p.m. EDT and will help you get the answers to burning questions about 401(k)s you may have been afraid to ask. To sign up, click here.