Financial advisers act to snag 401(k)s

The volatile stock market has created a period of frenzy for financial advisers in the 401(k) area, who have seen a substantial increase in the number of new prospects.

They see a chance to attract new clients because as the value of their 401(k) accounts have declined, company executives have anxiously begun to consider new advisers for the plans.

“It’s amazing how many more 401(k) plans are reviewing their plans now than they did last year,” said Martin W. Pernoll, a senior managing director for Bay Mutual Financial LLC of Santa Monica, Calif., who advises 401(k) plans with $100 million or more in assets.

Normally, he meets with about three large prospects a month, but in March he met with 10 to 15 plans; in one week last month, he met with four large plans.

“[The volatile market] started this snowball effect in March,” Mr. Pernoll said.

Many small advisory firms say they are eager to capture new assets, but the rocky market is creating opportunities for large advisory firms as well, and smaller advisers could lose out, said Fred Barstein, chief executive of 401kExchange Inc. in Lake Worth, Fla.

“Larger firms are bringing that institutional money management philosophy and are really going after the advisers,” he said.

BEST SERVICE

Advisers who best serve their clients will win assets, said Steve Miyao, chief executive at kasina LLC of New York, which tracks industry trends. He has noticed that many plan sponsors are quite concerned about the lackluster market, and are evaluating their plans.

In many cases, this will lead to hiring a new adviser.

“I think people are very confused,” Mr. Miyao said.

“It is human nature that when things aren’t going well that they start to re-evaluate the situation,” he said. “Unfortunately, it often takes a catastrophic event for people to do that.”

Some clients may use rocky markets as the excuse they were looking for to switch advisers.

“Volatile markets and recessionary periods always provide cover to perform some housecleaning,” Luis Fleites, vice president and director of retirement markets at Boston-based Financial Research Corp., wrote in an e-mail.

“Plan sponsors that had some existing levels of dissatisfaction may use the current situation as the last push they needed to make some changes,” he wrote. “However, it is important to remember that plans will face the same challenges with another adviser or plan provider as the market volatility impacts everybody.”

Plan sponsors may be getting pressure from participants to make changes, but they should be cautious, said D.J. Lucey, a senior analyst with Cerulli Associates Inc. in Boston.

“They should make moves strategically to enable their participants to have the best-of-breed options,” he said. “So, it should be moves for the long run.”

To be successful doesn’t require fancy approaches, just sound advice.

“The most successful advisers are the ones who are doing things the old-fashioned way,” meaning that they advise clients on what to do when they are losing money, said David Snetro, an adviser and vice president of RDM Financial Group in Westport, Conn., where he heads the retirement plan services division. “When the markets are down, that’s when plan sponsors get nervous.”

The firm has $575 million in assets under management.

Even though there is more pressure from larger players than in the past, Mr. Snetro thinks that he can offer more one-on-one attention than they can, and that he can compete with them.

“I love taking on the big guys,” Mr. Snetro said. “The big guys throw their weight around, but that’s our time to step up to the plate.”

That means all advisers, especially smaller firms, need to be prepared to defend their business, said Robert C. Auditore, managing director of Bay Colony Partners LLC in Boston. He thinks that advisers need to spend more time with their clients now than when the markets were strong.

“I think in any industry, uncertainty breeds opportunity for any company that thinks [it] can take over,” Mr. Auditore said. “We become an advocate for every participant so that if Mercer [LLC of New York] comes knocking on the door, we’re very proactive.”

Bay Colony manages more than $100 million in assets and works with companies with about 600 employees.

There has certainly been an increase in prospective clients in the past month or so, said Kerry Hemphill, an adviser and principal with Creative Benefit Concepts LLC in Albany, Md. The firm works mostly with smaller employers and manages just under $100 million in assets.

“I have meetings with four new plan sponsors this week that I’ve never met before,” Mr. Hemphill said. “They’re talking to us because they’re not happy.”

However, the uncertain economy has caused some companies to hold off on making any decisions, and others have chosen to re-evaluate their choices, said Rob Capone, president of BNY Mellon Asset Management’s retirement and sub-advisory group in Boston, which has about $33 billion in defined contribution assets.

“We see in certain blips in the industry like the subprime debacle that definitely has opened up opportunities,” he said. “Sponsors involved with certain partners have said, ‘we’re making changes.’”

Mr. Capone also thinks that smaller advisory firms and particularly RIAs have an advantage in this market.

“This is a great market for an RIA because they can showcase their talents,” he said.

E-mail Lisa Shidler at [email protected].