Retirement plan advisers turning to RIA aggregators to build practices

Some retirement plan advisers are turning to so-called “RIA aggregators” that focus on the defined contribution market to help them build their practices, the primary allure being the scale and support afforded by a large, like-minded adviser network.

The definition of an RIA aggregator is a bit amorphous because there’s a wide array of business models. But generally speaking, these are firms that actively gather a significant amount of plan assets through the outright acquisition of registered investment advisers or an affiliation model in which firms join an aggregator’s RIA and/or broker-dealer.

“As advisers specialize, they need special resources, and they get those [resources] from these kind of groups,” said Fred Barstein, founder and CEO of The Retirement Advisor University.

While the landscape is “growing and evolving,” there are roughly 10 to 15 firms that are considered full-fledged RIA aggregators, said Dick Darian, a director in BlackRock Inc.’s U.S. and Canadian defined contribution group.

“Many of these aggregator firms’ executives really began as advisers in the broker-dealer world but quickly specialized in defined contribution, went independent and began to scale their businesses,” he said.

ACQUIRE VS. AFFILIATE

Captrust, an independent RIA, is the largest of them, with 85 DC-focused advisers overseeing $194 billion in plan assets. Similar to other aggregators such as NFP, SageView Advisory Group and Gallagher Benefit Services, Captrust’s model is one of acquiring other advisory practices.

Pensionmark Financial Group, whose adviser network provides services to $47 billion in aggregate DC assets, is the largest aggregator whose primary model is affiliation. Some with this model, such as GRP Financial and Bukaty Companies Financial Services, allow firms to continue operating with an independent brand, whereas others such as Lockton Investment Advisors require advisers to do business under the Lockton name.

NFP and GRP also offer membership-type services, allowing advisers to access certain resources without affiliating or being acquired. For an annual fee, GRP Advisor Alliance provides access to financial wellness programs, custom-built collective investment trust funds and a proprietary suite of adviser tools, for example. Nearly 400 DC-focused advisers servicing $200 billion in assets belong to this network.

NOT CONSULTANTS

Aggregators do not fall into the same camp as the national consulting firms such as a Mercer or Aon Hewitt, but have grown to a point where they can move up-market and compete with such national consulting shops, Mr. Darian said.

“As an adviser, if you haven’t become part of a bigger group, it becomes very hard to compete,” said Troy Hammond, president and CEO of Pensionmark.

Advisers may gain a competitive advantage in meetings with prospective clients if they can use an aggregator’s brand and reference the aggregate DC assets under the network’s purview to promote a high level of competency, according to industry observers and firm executives.

Asset aggregation may also allow advisers to be more competitive from a pricing standpoint, they said.

Most aggregators have in-house services and staff to support advisers in activities such as lead generation, practice management, investment research and analytics, marketing and communications, client onboarding, adviser training, relationship management, compliance and technology.

“There’s just too much to know, and there’s no way you can be an expert” on everything, said Daniel Bryant, CEO of Sheridan Road Financial, which oversees $14 billion in DC assets.

Regulation such as the Labor Department’s fiduciary rule has accelerated activity and interest in such aggregators, executives said. Of course, advisers have to weigh what they’d potentially be sacrificing as well as gaining as a result of shifting their business to such arrangements.