Claims that the U.S. Department of Labor’s proposed fiduciary rule could prompt advisors into leaving the business aren’t just industry scare tactics. According to new research from Cerulli Associates, advisors who are now “dabbling” in the retirement plan space would be the most likely ones to head for the exits.
The third quarter 2015 issue of “The Cerulli Edge: Retirement Edition” reveals that many broker-dealers actively discourage their advisors/registered representatives from offering advice on defined contribution retirement plans because of stricter rules and the potentiality for a lawsuit in the retirement plan market. The DOL’s proposal, the report contends, will likely only increase this practice.
“The outcome of [the DOL] proposal should…apply greater pressure to the ‘dabbler’ segment to either fully commit to their DC business or stop pursuing it altogether,” the report states.
Less likely to leave the business, the study’s authors add, are retirement specialists who derive at least 50 percent of their revenue from advising on defined contribution (DC) plans. This segment accounts for just 5.1 percent of all advisors.
Dually registered advisors comprise the largest segment of these specialists (9.2 percent). Insurance producers (8.4 percent) and registered investment advisors or RIAs (8.2 percent) occupy the second and third spots.
The Cerulli report believes that RIAs are “particularly well suited” to the DC retirement plan market because of their independence, fiduciary mindset and transparency. This combination “aligns well” with the priorities of plan sponsors.
The DOL rule aside, the report notes that a growing number of defined contribution-investment only (DCIO) asset management firms and providers are “shifting their attention” to dabblers, viewing them as emerging specialists who can grow the retirement plan business. These “dabblers” — those for whom DC plans contribute 15 to 49 percent of practice revenue — account for about a fifth of the advisor community. Insurance producers are the biggest group of dabblers at 35.1 percent.