Stone Street Equity spends $100,000 a year running quarterly analytics for its institutional clients. To trim those costs, Principal Barbra Delaney says she’s thought about merging back offices with another institutional advisor.
“Although we can get support through LPL, we are concerned with our independence and non-conflicted advice. Consolidating can potentially help us save money,” said Delaney, whose Westchester, N.Y.-based firm manages $3 billion in institutional assets and 95 401(k) plans.
Since 2010, the number of institutional advisors merging or acquiring other institutional advisors has grown by 50%, according to Prudential.
“We see more plan sponsors looking to hire financial advisors who can demonstrate core expertise at the institutional level rather than the retail space of wealth management,” said Harry Dalessio, vice president of strategic relationships at Prudential Retirement. “Due to this trend, advisors are looking to build out their institutional retirement practices.”
Ideally, Delaney wants to align with a financial advisory group to develop an individual wealth management arm at Stone Street Equity.
“Individual participants in our 401(k) plans ask us what they should do with their personal and family money and it is potentially a conflict for us to offer advice,” said Delaney, who is an advisor to defined benefit and defined contribution plans. “To offer guidance without conflict, we need better guidance from the Department of Labor.”
The challenge is finding a retail advisory practice that is the right fit. “The advisors who are good are usually tied up with non-competes at the big brokerage and wire houses,” said Delaney. Compliance is also an issue since retail advisory businesses entail more demanding oversight, for an estimated profit level of only 20%, she added.
Institutional retirement includes define contribution plans in the corporate market, government space, union market and tax-exempt hospital market.
“The 22 retirement specialist firms we work with are actively engaged in recruiting talent and practices so they can continue to grow and have a scalable business long term,” Dalessio said. “They are lifting out financial advisors who focus on retirement.”
Institutional clients are requesting more education and advice for their employees and a broader, more holistic financial wellness education program, according to Mark Wetzel, president of Fiduciary Investment Advisors (FIA) in Windsor, Conn.