Retirement plan financial advisors are offering more lower cost investment products as more switch to a fee-based compensation model, says one retirement plan specialist.
The trend is affecting small and mid-sized companies that offer retirement plans, says Mike Narkoff, senior vice president at Ascensus, one of the largest independent retirement plan service providers in the country.
The expansion of offerings that employers have to choose from is an outgrowth of the switch by advisors to fee-based, rather than commission-based, compensation models, he says.
“The migration to fee-for-service models is the most significant change we have seen in the industry and it is only in its infancy,” says Narkoff. “It is a simpler way to meet the new fee disclosure regulations and it gives the advisor the latitude to use any type of investment product because it does not affect his compensation.”
“Advisors are gravitating to lower cost investments, which gives employees access to different types of investment products that used to only be available to large plan sponsors,” he adds.
Another trend in the retirement plan marketplace is the way the success of a plan is measured.
Instead of judging a plan by the number of participants, the success of plans is now being judged by whether the participants are on track for retirement, Narkoff says.
“Advisors are focusing on retirement readiness, income replacement and where participants are compared to their retirement goals,” Narkoff says. “The idea that advisors just plan the menu of investment options for the employer is a service model that has run its course. A good advisor does both the menu and seeing if participants are on track for retirement.”