Within the advice-giving space, only a small segment of financial advisors focus on retirement plans and the so-called plan sponsor market consisting of employers offering 401(k)s and other perks to their workers, even though competition for that specialized business is pushing up compensation.
Compensation at LPL Financial Retirement Partners is rising due to a market that is maturing and is becoming more competitive, said the company’s executive vice president. LPL Financial Retirement Partners has bumped up the payout to advisors that act as fiduciaries to retirement plans, reports Investment News, which goes on to explain that fee-based advisors will now be able to take home 95 percent of the payouts on business they do for plans instead of the previous 90 percent.
Essentially, “[LPL] want[s] to be a home for retirement-focused planners and now their payout is at the upper-range limit,” Scott Smith of Boston-based Researcher Cerulli Associates tells eFinancialCareers, observing the average LPL payout to advisors is roughly 92 percent.
“The retirement plan business has gone through fee compression over the last five to 10 years because it's maturing and there are more entrants,” said William R. Chetney, executive vice president at LPL Financial Retirement Partners, which has locations in Boston, Charlotte, N.C., San Diego and San Juan Capistrano, Calif. He added, “More players in the retirement plan industry means tougher competition on pricing, as some advisors try to undercut others to attract more retirement plan business.”
Chetney said LPL has an advantage in its size, which allows the firm to give advisors a little more for the business they're earning.
While LPL’s payout to advisors sounds very attractive given that advisors at wire-houses handling traditional wealth management often only get to keep less than half of the revenues they generate for themselves, much depends on whether the advisors have to shell out any of their own funds for support services, Robert Wolfe, Managing Director of United Capital Financial Partners’ South Florida Region, tells eFinancialCareers.
Wolfe’s firm is a so-called aggregator, which has been recruiting individual financial advisors, offering them administrative, compliance and other services in return for a share of their revenue stream, and which recently appointed a new East Regional Director to handle recruiting east of the Mississippi.
Wolfe says that an advisor with $500,000 a year hitting his or her P&L might end up spending 80 percent or more in operating expenses if they have to spend their own money for space in a prime location, employee support or technology. That same advisor could also end up keeping most of his or her book of business if the individual works independently from home or rents space above a warehouse.
LPL—which was unavailable for comment—describes itself as a firm providing retirement-focused advisors with the specialized support, tools and services they need “to exceed client expectations and strategically grow their practices."