The End of Trend?
Topics in 401(k) Distribution: First in a Series
For more than a dozen years RSI studies have traced the inexorable march of 401(k) advisors as they converged around three interrelated principles: 1) being fee-based; 2) writing business as a Registered Investment Advisor or Investment Advisor Representative and 3) acting as a fiduciary. This year all three trends may be hitting the wall.
Today, 65 percent of 401(k) advisors describe themselves as mainly fee-based, unchanged from last year and essentially unchanged since 2016 (63 percent). Barely one in four advisors (24 percent) saw themselves as mainly fee-based in 2005 while more than six in ten (61 percent) in those days considered themselves mainly commission-based.
Importantly, the advance of fee-based advising is topping out among advisors irrespective of the importance of 401(k) to their practices. Among Light advisors (less than 20 percent of practice income, 46 percent of advisors) six in ten now consider themselves fee-based, unchanged from last year. Among Medium advisors (20 percent to less than 60 percent of practice income, 28 percent of advisors) the proportion has increased marginally, to 66 percent. And among Heavy advisors (60 percent or more of practice income, 26 percent of advisors) the fee-based proportion has actually fallen back a point, to 74 percent. The growth of fee-based practices has come almost entirely at the expense of commission-based practices; the proportion of 401(k) advisors describing their practices as about equally divided between fees and commissions has been remarkably stable for a decade.
A similar pattern obtains for RIA activity; the share of 401(k) advisors writing at least some plans as an RIA (67 percent) is up only a point since last year, itself only a point above the year before that (although more than half again higher than in 2011). Medium and especially Heavy advisors, those likeliest to be putting on an RIA hat to write larger plans, are already at 76 percent and 82 percent respectively while Lights lag at 53 percent. But unexposed as they are to larger plans, do Lights really need to function as RIAs?
Finally, advisors today are almost twice as likely as in 2005 to consider themselves fiduciaries on the plans they write (a whopping 86 percent today versus 45 percent then) but this value is only a point higher than last year. It is also virtually identical across all three strata of advisors meaning there’s almost no one left to play catch-up. So after spiking as the DOL vise tightened in 2015 the acceptance of fiduciary responsibility today is almost universal in the channel with little prospect of changing. The proportion of advisors acting as 3(21) or 3(38) fiduciaries is also up sharply (more on that in a later piece).
Has the future arrived? To all appearances it’s either here or close. Have products, service levels and pricing kept pace?
About the Research
Retirement Services Intermediaries studies were launched in 2000 by Brightwork Partners LLC; Brightwork was acquired by NMG Consulting in 2017. Findings are based on selected RSI waves carried out between 2005 and 2018. These studies are conducted by telephone, typically among a representative cross-section of 600 or more advisors deriving income from 401(k) plans. RSI 12 is scheduled for delivery by year-end 2018.
About NMG Consulting
NMG Consulting (https://nmg-group.com/businesses/nmg-consulting/) is the leading multinational consultancy focusing solely on investments, insurance and reinsurance markets. NMG works with financial organizations to shape strategy, implement change and manage performance. NMG Consulting has approximately100 employees spread across offices in Sydney, Perth, Singapore, Cape Town, Kuala Lumpur, London, Toronto, Kansas City and Stamford. The firm was established in 1992.
For more information
Merl W. Baker, 203.487.2000; Merl.Baker@NMG-Group.com
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