At first glance, opportunities in 401(k) plan management look like they've lost their luster in recent weeks. Vanguard's new bundled service for plans with assets of less than $20 million is likely to grab a piece of the action from financial advisors. The U.S. Department of Labor has also pulled its proposed rule to tighten the definition of fiduciary-which had been expected to drive away many broker-dealers and those advisors just dabbling in the space.

The reality is that there's still much potential to build a lucrative practice here if you're patient, persistent and prepared to compete, say advisors who've carved out a significant niche in the space.

For starters, plan sponsors haven't been shy about seeking help. About 81% of plans are managed by an advisor, according to the 2011 Mid-Year Opportunity Index from the 401kExchange, a consultant serving the small and midsize markets. That's up from about 75% in 2008. Additionally, 8.9% of plans that don't have an advisor are considering adding one and approximately 12% of plan sponsors surveyed are looking to change advisors.

So what specifically does it take to succeed in this business?

"Advisors who want to get in need to know that it's difficult or impossible not to be at least a 3(21) fiduciary," says Nick Della Vedova, the president of 401(k) Advisors, an RIA in Aliso Viejo, Calif., referring to Section 3(21) of the Employee Retirement Income Security Act.

Many plan sponsors are nervous about added exposure under Labor Department fee disclosure regulations scheduled to go into effect next year and want someone to share the burden. The Labor Department also plans to re-propose a rule on the definition of fiduciary in early 2012.

401(k) Advisors, which manages more than 300 retirement plans representing $14 billion in assets, works in a 3(21) or 3(38) fiduciary capacity depending on clients' needs, says Della Vedova. Networking with employers' centers of influence, including their health and property-casualty brokers, has been a key factor in growing its practice.

Unlike many advisors who think they need to move clients from provider A to provider B to add value, the firm keeps more than 90% of its new clients with their current providers. "We analyze what they have with A and how to make it better," he says.

401(k) Advisors has developed proprietary technology for service provider comparisons. In 2005, the firm started the Retirement Plan Advisory Group, a network which provides more than 370 advisory firms with access to systems, technology and resources.

"Ultimately, you need to have systems, processes and focus. ... Spending eight hours a day on reports and two hours a day with clients and prospects doesn't work," says Della Vedova.

Joshua Itzoe, a partner with Greenspring Wealth Management, a fee-only wealth management and retirement plan consulting firm in Towson, Md. and Athens, Ga., stresses the importance of gaining technical expertise and being patient.

"It's not a quick hit," he says. "While we were growing the business, there were times I wanted to beat my head against the wall." The sales cycle, he learned, can be six months to three years.

Greenspring currently manages more than 40 401(k) plans representing roughly $425 million in assets, and it manages another $125 million for private wealth clients. The firm began its venture into retirement plan consulting about five years ago.

"We thought our fee-only model and independent approach would be an advantage on the retirement side and we weren't scared of the word fiduciary," says Itzoe. But clients didn't exactly line up at the door as he says he naively expected.

Itzoe, managing director of Greenspring's institutional client group, spent much of those first few years becoming technically proficient. He also published the book Fixing the 401(k), which examines the role of plan fiduciaries and tackles such issues as hidden costs, fee disclosure and conflicts of interest.

Greenspring's focus on best practices to fiduciary oversight has helped it distinguish itself from those competitors who concentrate mostly on investments and participant education.

The firm also takes a very proactive marketing approach, which Itzoe says is easier to do on the retirement plan side because of widely available public data. Searching Form 5500 filings within a 100 mile radius of a ZIP code and looking for plans with $5 million to $50 million in assets is a good way to get started, he says.

Greenspring has attracted many clients through speaking engagements on best practices. The firm puts on workshops and invites companies and other professionals to attend, along with their clients. Itzoe has built professional relationships with lawyers, CPAs, human resources and employee benefits professionals, and industry peers.

Such a relationship led to Greenspring's acquisition earlier this year of (k)larity Group, an Athens, Ga.-based retirement plan advisory firm focused on small to midsize 401(k) plans. An acquisition hadn't been part of Greenspring's strategy, but the opportunity presented itself when (k)larity's owner, whom Itzoe and his partner had shared ideas and best practices with, decided to sell the business to pursue other career opportunities.

How does Greenspring hold its own with the big guns in the 401(k) business? "If clients think we're competing with Fidelity, Vanguard and T. Rowe Price, we haven't done our job of explaining what we do," says Itzoe.

Greenspring views itself as an extension of its clients' HR departments, he says, working with ERISA attorneys, third-party administrators, CPAs and plan providers-and taking on the level of fiduciary responsibility the client needs.

Itzoe puts a big emphasis on helping clients gather and evaluate plan fees for competitiveness and reasonableness. "It's not enough to hand information to people. You have to explain what the numbers mean," he says.

Greenspring's average fees are two to four times more for retirement planning than for individual private client services because there's a lot more work associated with it. The revenue split between the two sides of the business is about 50-50, says Itzoe, and the two are also close in profitability.

In general, retirement planning has lower profit margins than other kinds of financial planning-which is why scale and efficiency are so important.

"If you just have a handful of retirement plans, you have to have a good wealth management practice or you're going to starve," says Gerald Wernette, director of retirement plan consulting for Rehmann Financial, the wealth management arm of Michigan-based Rehmann.

Rehmann Financial began its retirement practice by offering third-party administration services, and in 2000 it added the investment advisory component. It now provides administration to about 950 plans and advisory services to another 450.
Rehmann has grown its business by reaching out to accounting, tax and wealth management clients; by concentrating on larger businesses in its marketplace; by developing affiliations with other benefits professionals; and by asking for referrals. "Some of this stuff just sounds so simple, but so many people don't take the time to do this," says Wernette.

Recently, a CPA in Rehmann's tax division brought in a client with big income but insufficient retirement savings. The client's regular wealth advisor was so impressed with Rehmann's help that he asked the firm to help set up a plan for his own practice.

"We see attitudes changing," says Wernette. "Outside advisors realize we're not going to steal their clients. We can help them retain and grow their business."

Rehmann Financial also seeks mergers and acquisitions with advisors who have solid practices but aren't getting support from their broker-dealers. Its goal is to magnify synergies. "We're looking for two plus two to add up to more than four when we join forces," says Wernette.

He thinks Vanguard's new service could be a good opportunity for smaller plans not seeking extra hand-holding, but he acknowledges that losing business is a real possibility. Still, he's optimistic. "Maybe we can replace it with higher-end relationships. I'm willing to make that trade-off," he says.

Rehmann's fee structure depends on plan assets, participants and locations. A $5 million plan with 300 participants in a single location might be 15 to 25 basis points of plan assets while one with 17 locations and multiple employers might be 40 to 60 basis points, he says.

Mike Montgomery, a 401(k) wholesaler for 27 years, started Tampa. Fla.-based Montgomery Retirement Plan Advisors "cold turkey" seven years ago with no existing income stream or client base. He used referrals, conducted cold calling through 401kExchange and T3 Direct, held seminars and partnered with advisors not permitted to accept a fiduciary role. In 2010, The 401kWire named him the top 401(k) advisor in the U.S. in the $5 million to $10 million plan segment.

"A financial advisor with an existing wealth management practice actually would take much of the same approach, but without the time pressure to move so quickly," says Montgomery.

To stay competitive, he provides fiduciary services, quarterly investment monitoring and benchmarking of fees and expenses. The firm is currently expanding its individual wealth management and employee education services.

"Narrowly focused 401(k) advisors like me often build out their wealth management practices eventually in order to introduce a more holistic approach to participant services," says Montgomery.