Over the next three years, investment advisors believe revenues from qualified retirement plans will rise substantially, about 60%, according to a recent survey conducted by McHenry Consulting.
McHenry, which has offices in Emeryville, California, and New York, conducted two separate surveys at the end of 2004 that highlight trends among advisors and third-party administrators (TPAs). McHenry Consulting, through a partner, refused comment on the report because it had been prepared for a client, not the general public.
A service that advisors should have at their fingertips going forward, according to the survey, is a fund analysis service that monitors investments against the criteria in the investment policy statement of the mutual fund. Most advisors have someone internally who monitors the investments themselves.
The majority of advisors polled–almost 80%– believe providers of investment advisory services should be unaffiliated with the 401(k)/retirement plan’s asset manager or mutual fund company, the report found. TPAs followed suit. A majority of TPAs also felt it was very important for the investment advisor to be unaffiliated with an asset manager, mutual fund, or other interested party.
Advisors polled said the least important aspect of an investment is its past-year performance. The majority of advisors–most of whom had fewer than 250 retirement plan clients– listed asset type, be it equity or fixed income, and size of the asset class, whether large or small, as the most important information an investor should know about.
Most advisors and TPAs surveyed noted they would most prefer to receive information through the Internet, with industry conferences ranking second. The kind of service advisors want–if they don’t already offer it–is low-cost money management, including collective investment trusts. Once they have active, low-cost money management in place, almost half of the advisors surveyed would like a third party to provide due diligence in both the selection and the monitoring of these trusts.
One interesting finding was the way TPAs and advisors differ. For example, the majority of TPAs surveyed would not replace a brand name mutual fund with a similar unregistered investment if it had significantly lower expenses, but almost 60% of advisors would do so.
Of the TPAs surveyed, revenue sharing is the number one investment issue. Fee disclosures are an important issue now in revenue sharing and other such payments–such as fees directed to administrative professionals from fund assets.
Also, a whopping 75% of the TPAs–the majority of whose average client has less than $5 million and 25 to 49 participants–are looking to consolidate: they would consider buying another firm or selling their own firm in the next three years, according to the report.
Advisors are now offering more alternative investments that feature index strategies and variable (lower) pricing structures, McHenry found. There is also a continuing and even “accelerating” trend toward fee-based services and toward a mix of fee and commission-based compensation, McHenry says.
To read McHenry Group’s research, go to http://mchenryconsulting.com/research/pdfs/; the RIA and TPA reports are dated Dec. 15, 2004.
Low-Cost One-Man Plan
401kBrokers.com, a third-party administrator in La Jolla, California, recently launched Solo 401k, a one-person 401(k) plan using Vanguard funds that allows self-employed workers to defer up to $44,000 per year from their taxable income. With a spouse or partner participating, a couple can deduct up to $88,000 per year. President and CEO Craig Lewis Gillooly says that the Solo 401k’s average annual expenses are 0.47%, which includes a 0.25% administrative fee in addition to fees levied by Vanguard no-load index funds. There are no start-up costs with the funds, no front loads or back-end loads, and no brokerage commissions.
To check out the offering from 401kBrokers.com and the Vanguard fund information, go to http://401kbrokers.com