Independent Advisers Prominent in Retirement Plans

Ellie Behling

August 04, 2009 — Independent advisers concentrate more of their assets in employer-sponsored retirement plans compared to other adviser channels, according to Cogent Research.

Overall, more than half (55%) of advisers in all channels are managing at least one employer-sponsored retirement plan (ESRP), according to Cogent’s annual Advisor Brandscape report.

Advisers in independent firms are more likely than other advisers to be involved with managing or providing advice on ESRPs, with more than half (60%) using them, followed by regional and national advisers (both 57%). Forty-one percent of registered investment advisers (RIAs) manage ESRPs.

For independent advisers, ESRPs make up 13% of their assets—more than any other adviser channel. Forty percent of advisers in the channel hold at least 20% of their assets under management (AUM) in ESRPs. The Cogent report notes that the results confirm that independent planners have successfully positioned their practices with plan sponsors and leveraged relationships with other professionals for referrals.

However, wirehouses still manage the largest chunk of ESRP dollars. National wirehouse advisers have 37% of employer-sponsored retirement assets among advisers, followed by advisers at independent firms (33%). RIAs come in third with more than a fifth of assets (21%), and regional and bank advisers hold small slivers (5% and 4%, respectively).

Wirehouses are more prominent in the institutional and retail space than in the retirement space. For instance, wirehouses lay claim to 45% of institutional assets and 40% of retail assets, the research shows.

Asset Allocation Differences

Advisers who manage or advise employer-sponsored retirement plans show some differences in asset allocation strategy compared to advisers who do not manage ESRPs, according to Cogent Research.

For instance, advisers in ESRPs show a higher tendency to allocate toward open-end mutual funds (33% allocation versus 27% for advisers not in ESRPs). They also show slightly higher tendencies to invest in exchange-traded funds (ETFs), variable annuities, and life insurance. Advisers of ESRPs seem slightly less likely to allocate to individual securities, separately managed accounts (SMAs), cash, and fixed annuities, the data show. However, the report is looking at adviser asset allocation in general, not specifically within retirement plans.

Furthermore, advisers who are heavier users of ESRPs allocate more assets to ETFs. For instance, advisers with 20% or more AUM in ESRPs allocate 8% of assets to ETFs, versus 4% for advisers with less than 5% of AUM in ESRPs.

John Meunier, principal at Cogent Research, LLC, noted that it is not clear from the research whether advisers are using ETFs actually in retirement plans or not, but “the fact is they’re more familiar with those products than the average adviser.”

That could be another line of attack for ETF providers trying to get into retirement plans, Meunier told PLANADVISER.com. “Given ESRP producers’ heightened familiarity and use of ETFs, retirement plans may be even more vulnerable to ETF infiltration than previously thought,” he said.

Cogent Research surveyed 1,500 registered financial advisers in March.

The 2009Advisor Brandscape is available for purchase at www.cogentresearch.com.