PLANADVISER - May/June 2019 - 25

The Scalability of Advice
For Plan Sponsors Matters
Reflecting on the changes he sees in the retirement advisory
industry, Fielding Miller, CAPTRUST's CEO and co-founder,
says his firm and others are in the midst of a real push
on 3(38) discretionary fiduciary investment management
services. Some clients still prefer the nondiscretionary 3(21)
relationship with their adviser, but, Miller says, more are
coming to see the benefits of 3(38) service.
" Recently, the business model has clearly been evolving
in favor of greater use of 3(38)
fiduciary arrangements, "
Miller says. " In today's environment, the discretionary
management arrangement makes a lot of sense for a lot
of different clients. It makes a ton of sense on the smaller
end of the market, and, in fact, it's one of the few ways you
can try to scale an advisory solution for that otherwisetricky
marketplace. "
Miller observes that the 3(38) fiduciary relationship
requires less input from the plan sponsor than when the
adviser is a 3(21). " You're still managing the money and
doing your job as an adviser, " he says, " but you don't have
to wait for the committee meetings to effect a given fund
change, for example. So, in that sense, it can be a lot easier
to build scale based on 3(38) relationships. "
Of course, the 3(38) arrangement has its own hurdles,
from the advisory-firm growth perspective.
" It's pretty intuitive why 3(38) seems more scalable-
because you can create your investing models and manage
them directly on behalf of many clients at once, " Miller
explains. " However, if you zoom in and think about how
trading and processing works in 401(k) plans, you can see
that the benefits of this scale will come into play only once
you reach a certain amount of back office sophistication and
client volume. "
The idea is that, because each retirement plan provider
has a different set of rules for trading and processing, the
adviser taking on 3(38) services must have a very strong
back office operation-it will need to create the whole 3(38)
architecture that will allow more efficiency by enabling bulk
omnibus trades.
" So it's not a complete net savings, in other words, " Miller
says. " You have to do all that difficult work in advance of
creating these systems and negotiating with providers to
make it as efficient and cost-effective as you can. But this
challenge is surmountable, and, more and more, we're
having success leading with 3(38) as our recommendation
for many new clients. We do think it's the right way to go for
a lot of folks. " -John Manganaro
Opportunity or Threat?
ACCORDING to Jim Young, vice president,
product management,
retirement,
asset management and annuities
at Broadridge Financial Solutions,
Inc., in Silver Spring, Maryland, there
are two possible routes the open
multiple employer plan, or " open MEP, "
market could take as it develops-both
significant for advisers. One would be
" from the top, down, by recordkeepers, "
and the other " from the bottom, up, by
advisers, " he says.
Young anticipates that advisers
may be able to act as a gateway for new
and existing small and even midsize
business clients, encouraging them to
join a MEP to provide retirement benefits
to their employees. Advisers will be
needed to support participants and to
provide education as the numbers of
plans and participants swell, he says.
" While there's a likelihood that
availability and proliferation of open
MEPs will enhance the opportunity
for advisers to interface with a larger
number of small-business owners, it's
likely that their role and compensation
will no longer center on plan investment
responsibilities, " Young says.
According to Young, it may be rough
sailing as advisers try to win open MEP
business. Recordkeepers will have an
advantage in creating and growing
the plans. Leading payroll service
providers are possible competitors in
this potential market, too, Young says,
as they already have a small-business
client base and the necessary administrative
resources.
" Local advisers also often provide
advice or even discretionary management
to plan sponsors regarding plan
investments, " Young says. " Under
an open MEP, that approach would
underscore one of the key benefits
of most MEPs-the aggregation and
concentration of money into investment
sleeves to enhance buying power,
increase investment policy oversight,
and lower costs. With the leverage of
large asset pools, most open MEPS will
be managed by institutional
investment
managers. This is a good thing
for small-business employees but not
necessarily for advisers. "
At the same time, the open MEP
market will " likely coalesce around a
variety of specialized open MEPs that
target specific industries and employer/
employee characteristics, " he says.
" For example, current MEPs sponsored
by some professional associations
offer a wide array of complex
investment options. Such offerings
may be appropriate for groups such as
doctors and lawyers but not for industries
in which employees are generally
not investment savvy, " Young says.
" Given this potential landscape,
the expectation is that many advisers
could primarily serve in a consultative
capacity, helping small-business
owners decide which open MEP would
be right for their unique employee
needs. They'll also serve in an educational
capacity, helping employees
navigate investment options and the
enrollment process. " -JM
planadviser.com May-June 2019 | 25
http://www.planadviserdigital.com/planadviser/may_june_2019/TrackLink.action?pageName=25&exitLink=http%3A%2F%2Fplanadviser.com
PLANADVISER - May/June 2019

Table of Contents for the Digital Edition of PLANADVISER - May/June 2019
