a degree of advice without being [subjected] to the same
standard. In many cases, they are providing the same
advice, with a different standard,” he says. “For providing
the same service and the same advice, they should be held
to the same standard.”
Another SEC study prompted by Dodd-Frank looks at
how to beef up adviser examinations, and plan advisers
would feel a direct impact. The report released in January
2011 suggests Congress pick from three options: 1) impose
user fees on SEC-registered investment advisers to pay
for more examinations by the SEC’s Office of Compliance
“There is pretty broad
consensus that the adviser
exam program needs to be
ratcheted up,” Barry says.
The SEC study found the
number of examinations
of registered investment advisers (RIA) conducted each
year decreased 29.8% between 2004 and 2010. Just 9% of
these advisers were examined in 2010, so, at that rate, the
average RIA could expect to be examined less than once
every 11 years. “We know that they visit some of the larger
ones more often, so they visit some of the smaller ones less
often,” Barry says.
“The OCIE has been underfunded for years and years,
so the growth in the examinations staff has not kept pace
with the growth in investment advisers,” says Neil Simon,
IAA vice president for government relations. The SEC once
performed routine exams regularly, he says, “but these
days, almost all exams are based on a risk assessment.
Given that resources are precious, the SEC is trying to
identify the advisers who pose the greatest risk.”
The logistics remain up in the air, because Congress
would have to pass legislation picking one of the options.
Draft legislation was floated in fall 2011, Bellaire says, with
a revised version expected to surface this year.
“There is
pretty broad
consensus
that the
adviser exam
program
needs to be
ratcheted up.”
4.Gaining expertise in both customized and index funds. Advisers are spending less time helping pick
off-the-shelf active funds for plans. Customization appeals
to sponsors partly because it breaks the connection
between a retail investment brand and participants,
J.P. Morgan’s Falcon says, and allows sponsors to make
changes more often. Today, committees often hesitate
to take a lagging fund out of the lineup because that
risks crossing the fiduciary line, he says; if the new fund
subsequently does not perform as well as the replaced
fund, that sponsor may face participant lawsuits. “When
they have fund-of-fund components, they can have
multiple managers in some large asset categories,” he
says. “So they can move money from vehicle to vehicle, or
replace a manager, more frequently. Ultimately, it is going
to make it look more like the DB space.”
That thinking has started to spread to target-date funds,
at least at the institutional level of plans with more than
$1 billion in assets. Many plans initially went with their
providers’ target-date fund series. “We are just starting to
see committees say, ‘Hey, we are in this target-date product.
How is it performing? Does it line up to our needs?’” Falcon
says. “We are seeing more target-date replacement and more
customization at the larger-plan end.”
Other sponsors view it differently and increasingly
gravitate toward target-date series using passive funds.
“We have noticed that plan sponsors go down one path
or the other: One path is indexed, off-the-shelf funds,
and the other is customization,” says Alison Borland, Aon
Hewitt vice president of retirement strategy and product
development. “Generally when we see plan sponsors move
to index funds, a lot of it has to do with fees. A market-
based, hands-off solution can be very attractive to some
sponsors. There is certainly a perception that it decreases
the chance of fee-related lawsuits.”
5.Helping Baby Boomers get decumulation advice. There has not been widespread conversation among
sponsors about using traditional annuities in-plan, Borland
says, but some feel open to thinking about different ways to
help people in retirement. “It is basically organizations that
are willing to be trendsetters, to be ahead of the curve,” she
says of in-plan options.
Most decumulation will not happen within the plan
world, Falcon believes, but he thinks decumulation
increasingly will be an adviser-assisted activity. “It is
extremely complicated,” he says. “When you are in the
accumulation phase, your ability to aggregate accounts
and have an overall strategy and decide what to do next is
easier.”
But that need butts up against the increasing adviser-
specialization trend. A plan adviser who has an alliance
with other advisers who focus on the retail side—either
within their organization or independent advisers focusing
on decumulation business—may be in better shape to
compete, Falcon thinks. “We will see more teaming, because
there is value in continuity,” he says.
But Falcon does not envision plan advisers shifting focus
to specialize in working with retirees. “The way that the
industry is currently segmented, I do not see anything that
would make a plan-focused adviser suddenly interested
in retail accounts,” he says. “Advisers need to continue
to focus on their specialties, because the specialties are
getting more technical. You cannot dabble in either of these
things.” —Judy Ward
