Losing Lights: 403(b) Distribution Gets More Serious

Topics in 403(b) Distribution: Second in a Series

Five years ago the 403(b) distribution channel resembled 401(k) in that about half the advisors were “occasionalists” (Lights in our parlance) and about a quarter were specialists or Heavies. Transitional or Medium advisors made up about a quarter of both the 401(k) and 403(b) channels. Those proportions obtain today in 401(k); indeed they have barely budged in nearly 20 years.

But the contours in the 403(b) world are changing rapidly.  From 29% in 2012 Mediums have grown to 45% of 403(b) advisors while Lights have shrunk from 42% to 28%.

Revealing as well; in 2012 56% of 403(b) advisors derived less than 10 percent of their income from 403(b), today that figure has declined twenty points.  And the proportion of 403(b) advisors deriving between 11% and 30% of their income from 403(b) has more than doubled, from 20% to 50%.

The vanishing Lights in 403(b) are yet another sign of the increasingly institutional focus of 403(b)-active advisors–who also do considerable 401(k), 457 and other institutional retirement business.  The new focus looks to be paying off.  In 2012 only 14% of 403(b) advisors expected to put more emphasis on 403(b) in the year ahead; the figure today is 41% (rising to 63% among heavy 403(b) advisors).

A contributing factor may also be spin-offs from 403(b) relationships—rollovers, investment products and business services sold to plan participants or executives at plan sponsor organizations.  In 2012 only 66% of 403(b) advisors reported such spin-off income, the figure today is 100%.  And the median contribution to practice income from 403(b) spin-offs has tripled, to 15%.

About the Research

 403(b) Advisors 2 was conducted in the fourth quarter of 2016 among 152 advisors deriving fee or commission income from non-proprietary 403(b) plans.  Trend references are to an analogous Brightwork study conducted in the first quarter of 2012.