The big retirement benefit consultants are facing increasing competition as financial advisors move in on their turf, according to Chip Castille, the head of BlackRock's U.S. retirement group.

For workers with 401(k) accounts the shift could translate into better investment choices, while for firms like Mercer and Aon Hewitt that have been big players in the $21 billion U.S. retirement business it's a threat to their business.

In the workplace 401(k) market, Castille said he is seeing more financial advisors with a "high level of expertise" focusing on retirement plan design. These advisors tend to manage small business plans that are $1 billion-$2 billion in size.

"You did not see that two years ago," Castille said at the Reuters Global Wealth Management Summit. "It's shocking and extremely disruptive."

Scott David, head of U.S. investment services at T. Rowe Price, also speaking at the Reuters summit in New York, said that now "some of the most sophisticated benefits consulting comes from advisors at the biggest brokerages."

Both BlackRock and T. Rowe have built up sizable businesses serving the retirement workplace, competing with firms such as Fidelity Investments and Vanguard Group.

A seismic shift is happening across the wealth management industry, as more financial advisors move from commission-based businesses to ones that rely more heavily on fees. As advisors wade into the retirement world, more of them are taking on the role of fiduciary which requires advisors to put their clients' interests ahead of the financial firm that employs them.

Some of the biggest challenges for the retirement industry include the desire to create products that deliver fixed income to retirees; the push for lower fees; consolidation and increased regulation, Castile and David said.

The impact of the baby boomers on the financial markets––as well as the overall retirement industry––is an emerging trend that both are watching carefully.

The notion that boomers will cash out of stocks upon retirement and hurt the overall equity market is false, David said. "If you are going to retire with a 30-year time horizon, why would you pull money out of the market?" he said.

Another myth: baby boomers will stop working upon retirement. "Boomers have transformed every phase of life through which they’ve passed," noted Castille.

A bigger concern for Castille is whether the 401(k) system will live up to its promise of securing retirement for boomers.

"I worry that the 401(k) system is going to come under pressure," Castille said. That's because it was built as the baby boomers moved through the workforce. "It will receive its fair share of blame if boomers don't get the outcome they want."