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RIAs are missing out on a $5 trillion market

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SAN DIEGO - RIAs are missing out big time on a $5 trillion market, according to Skip Schweiss, managing director of advisor advocacy for TD Ameritrade Institutional.

Only about 10% of the 401(k) retirement plan market has been claimed by RIAs, Schweiss told advisers at TD's annual LINC conference. "There is a huge opening for RIAs," Schweiss said. "It's really a blue ocean opportunity."

Making the market even more tempting is the fact approximately 60% of retirement plan sponsors are considering changing plan providers, according to industry estimates.

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"It's a market that offers advisers a chance to diversify their practice with a predictable second revenue stream," Pete Dorsey, managing director of institutional sales for TD Ameritrade Institutional told Financial Planning in an interview. "The assets keep growing because of the automatic payroll contributions."

The target market for RIAs is businesses with fewer than 100 employees, which accounts for 90% of the 401(k) market, said Schweiss. "The average size plan is around $3 million to $8 million. That's your sweet spot."
RIAs usually charge between 25 and 50 basis points to work on a retirement plan, he said.

One of the best ways for advisers to break into the business is to approach clients who are C-suite executives or work in human resources for local companies. "Advisers who have been successful in the market say that telling the executives you can provide their company with the same investment portfolio they have is their biggest selling point," Schweiss said.

Advisers who are reticent to consider the 401(k) market risk losing clients who may be in plans that are served by competitors, Schweiss warned. And even if a planner doesn't enter the market as a provider, they should consider giving clients who are in a plan objective advice as a defensive retention tactic, he added.

"The assets keep growing because of the automatic payroll contributions."

RIAs who do want to pursue a retirement plan business should hire a staffer to set the business up and run it, Schweiss said. "It's not the kind of business you can run out of the corner of your desk," he said.

Business development and investment selection should also be priorities. "About 65% of funds on current plan menus are proprietary," according to Schweiss. "If you can offer a better choice of investments you can add a huge amount of value."

Caveats include a long sales cycle of around six to nine months, Schweiss acknowledged. And some advisers may be wary of the risk and liability that comes with handling retirement plans, said Dorsey. But, he added, there are advisers who specialize in 401(k) plans who will share the fiduciary responsibility for a percentage of the revenue.

Schweiss urged advisers to give retirement plans careful consideration. "You've been punching [below] your weight in this market," he said.

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