After about 14 years working as a veteran of two Wall Street brokerages, Michael Brown, a retirement advisor in Seattle, finally decided to pack it in last year and jump ship from his last firm, Smith Barney. He says he was tired of trying to sell retirement plan products through his old brokerage platforms, which tilted the playing field toward mutual fund and managed account sales, not toward the special needs of the qualified retirement plan participants he was tending to.
While at Smith Barney trying to get new business, he kept butting heads with rivals at National Retirement Partners Inc. (NRP), a consortium that seemed to be getting a lot of buzz, one that was dedicated to retirement plans and their regulatory needs. He decided to stop competing with them and joined them instead.
In July 2006, he became a partner at an NRP-member firm, ClearPoint Financial LP in Seattle. Most frustrating for Brown at his old firms, he says, were the lack of responsiveness, the lack of organization and the lack of tools to deal with retirement plans. He has come to believe that brokerages tend to see qualified plans simply as a way to sell more mutual funds, at least until they can grab the money sluicing out when employees leave their 401(k)s.
"They'd say, 'Stop bugging me about this tool or that retirement tool.' They wished your retirement plan business model dovetailed better with their business model of brokerage services and mutual fund wrap programs," says Brown. "They'll say, 'Good luck with those retirement plans. But have you gotten any rollovers yet?'"
Meanwhile, the 401(k) plan participants they are serving are hurting-not simply for mutual funds, but for knowledge about how to use them. The fear is that without sound advice, plan participants may be as apt to shake their 401(k) piggy bank for a house boat as they are to roll it over or protect it. Until recently, plan sponsors considered it verboten to give advice on these matters for fear that they would get sued. Now, says Brown, the plan sponsors are becoming more sophisticated, and they are more demanding of their financial advisors, specifically that they wear what is becoming the legal equivalent of a Hazmat suit: the mantle of a fiduciary advisor, who can give advice without fear of being partial to the products of fund companies.
Brokerages, he says, still don't have the stomach for that kind of work. Fiduciary advisors? "That's what they run from like it's the plague," he says. "What [plan sponsors] are figuring out is that their brokerages are not fiduciary investment advisors and don't have independent investment analysis." A

A Co-op ... But Better
That frustration among plan advisors like Brown, and their sense of solitude, is what inspired William Chetney, president and CEO, to found Capistrano Beach, Calif.-based NRP back in 2003. (Its first name was 401(k) Advisors USA, but the principals changed it to NRP in late 2005 to evince their expanding focus encompassing other plans such as 403(b)s and defined benefit setups.) The idea behind the firm at the start was to give team support and a brand name to a handful of advisors focusing on qualified plans, and also to give them the tools they needed.
The firm offers its affiliates, among other things, a way to slice and dice information on 401(k) vendors such as Fidelity and ING, ways to generate leads among plan sponsors, a process for covering their fiduciary responsibilities (including monitoring reports), automated rollover services and a backfield of on-staff CFAs. The needs of such advisors had alienated them from their own brokerages, making them "fish out of water," says Robert L. Francis, chief operating officer.
"One of the key attributes of NRP, which was not something we were conscious of building, but which became an attribute of the firm, was the community of like-minded people," Francis explains. "Before, when these people went to conferences and talked about these things to their counterparts among broker-dealers, they felt like they were speaking a different language."
If it started as a clubby consortium, however, NRP brought its A-game last year when it went into acquisition mode and began to purchase member firms, and then took it one step further by buying its own broker-dealer-Ohio firm Oberlin Financial Corp.-a purchase it completed in March. "This merger creates a unique NASD firm focused on the retirement plan market," says Cliff Oberlin, the acquired firm's president and CEO. Oberlin Financial, a broker-dealer with origins in a family-owned broker-dealer founded in the 1950s (Cliff Oberlin's mother, father and grandmother were principals), had also been concentrating its energies on qualified plans. (Under the new structure, Oberlin Financial has been renamed NRP Financial, and Cliff Oberlin continues as president and CEO of this, NRP's new broker-dealer business.)
One of the most important aspects of this back-office support is that NRP is helping retirement advisors to better act in a fiduciary capacity and carve out their own velvet niche, its principals say. "Our qualified plan consultants are held to a higher standard than registered reps dealing with individual investors," says Chetney. While most registered reps live under SEC and NASD rules, retirement advisors, he says, "live under NASD and SEC and also ERISA and the Department of Labor, which sets them to a very high standard."
Chetney launched the firm after he had been retired for a couple of years, and had gone back to work as a consultant to plan sponsors. "The jelling of the concept [for 401(k) Advisors USA] came for me when I was taking this break and looking around at other organizations in my past life I had done business with. ... I looked and said there's no one serving that small group-there are more than 400,000 registered reps, but less than 2,000 of the caliber we'd want to work with really specializing in the area of qualified plans."
In late 2005, Bill Cvengros, the former CEO of PIMCO Advisors, came in as chairman. Cvengros had been involved in a few small, early-stage companies in the past, and also had a financial services background and experience with corporate governance.
The firm started in 2003 with a small group of six friends and family affiliates. It now has 92 member firm locations, five of which it owns directly after beginning its acquisition phase last year. It serves in excess of 3,000 retirement plan sponsors and has about $29 billion in assets under advisement, says Francis.

Happy Meal Kit
One of the big advantages of joining the firm, say the principals, is that there is a tool kit of products that would normally be cost-prohibitive if individual advisors tried to buy them on their own. The suite as a whole helps them partner with their plan sponsors as functional fiduciaries, says Francis.
One of these is a proprietary benchmarking software called the 401k SearchPro Plan Provider Analysis and Benchmarking System, which analyzes almost all the services and record-keeping functions of defined contribution service providers. Some analysts have pointed out that the NRP model is not only advantageous to advisors, but to the 401(k) vendors, since members of the consortium might have a penchant to use certain service providers, but Francis says that that is not the point.
"NRP does not direct our member firms to a short list of providers," Francis says. "We enable them to make the best decision based on the unique need of the given plan sponsor. You'll have situations where the plan is having a participation problem ... we can go into that tool to find out which service providers have done the best job of increasing participation. Another plan sponsor might want to work in a confined investment lineup, or they want an open architecture product. This service lets them know all the products in that universe and lets them compare them with each other."
Those who buy into the NRP package also get the firm's proprietary investment due diligence tool, which gives them fund analysis by the firm's own staff of CFAs. "Most RIAs don't have their own CFAs on staff," says Brown. "NRP has a system of monitoring and covering every one of those funds so we advisors don't have to waste time creating due diligence reports. We're still the eyes reviewing the investments, but NRP takes care of creating the due diligence and doing heavy lifting with the chartered financial analysts."
Brown says that having such CFAs on staff creates credibility that the advisors are truly behaving in an independent way and are not tarnished by activity like undisclosed revenue sharing behind the scenes, the kind of thing that has given brokerages a black eye. NRP also provides a fiduciary investment monitoring report that allows advisors to evaluate how the funds in a plan have done relative to the 401(k)'s investment policy statements. "Clients have the statements, but they quite often don't have the documentation that shows they have followed their own investment policy," says Francis. "This tool fail-safes that possibility. The report links the investment analysis of a fund with the specific criteria stated by a plan sponsor's investment policy statement. The statement may say, "Here is how we oversee the performance of the funds," and in the event these funds underperformed, they will be subject to a discussion of the investment committee for replacement or removal. We have a report that inputs that data and automatically generates that report."
Other tools in the kit include the ability to automate rollovers and an automated response system for technical questions related to ERISA law, or rules from the IRS or the Department of Labor. In addition, the firm provides fiduciary liability insurance. Lead generation is an important aspect as well, Francis says, as the company provides a database of prospects and convenes "Webinars" for plan sponsors.
Francis says that if the company doesn't have a tool somebody needs, they are usually very amenable to adding it. The company recently partnered with Centrelink to provide its advisors with life insurance and estate planning and is partnering with Envestnet to provide turnkey asset management.

Buying A Broker-Dealer
The move to buy Oberlin might have been startling to some, as if, from its important strategic eminence, NRP was trying to take advantage of its gatekeeper role to squeeze out vendors (a kind of Swiss Guard for the retirement crowd). But the principals say that the acquisition of this retirement-focused broker-dealer was a way for it to give its new members its own retirement-focused back office, one that understood the forms and processes tailored to qualified plan participants. The majority of the individuals joining NRP continue to be NASD-licensed brokers, and they can act as both registered reps receiving trailing 12b-1 fees or as RIAs.
"Part of the goal was to develop the preeminent retirement advisor B-D so that virtually 100% of the time and resources and development would be for their unique businesses," says Francis. "The second reason for the acquisition was that ... we have an acquisition strategy for a subset of those member firms, and in order to acquire a member firm and its earnings, you need to be an NASD registered broker-dealer."
The purchase does not mean that the company plans to necessarily compete with its vendors, he says, and its advisors are still working with other broker-dealers who approve the use of NRP tools. Before, certain broker-dealers wouldn't allow their reps to work with NRP's retirement toolbox, Francis says. "They didn't have the expertise to use the due diligence on tools that the advisors would be using. By having our own B-D, we now provide the ability to let them avail themselves of our tools."

Benefits Of Being A Member
Francis says that NRP is looking to limit its complement of member firms to 150 to 200 firms nationwide, and that the focus is on offices with at least $350 million in assets under management.
"The reason for the limit is that we want to retain real exclusivity to the brand," he says. "Real panache. We don't want too many people in a given area waving the banner of NRP and competing with each other."
As for an IPO, Cvengros says, that it is just one possibility. "We believe by building a solid business we're going to be in a position for a couple of alternatives for long-term liquidity, and one of them certainly could be an IPO," he says.
Brown says that since he began prospecting clients in September of 2006 under the NRP banner, his payout is much higher and his closing ratio has more than doubled. "If you're a retirement plan person at a brokerage, why are you giving up 60% of your revenue for a Morningstar disk that shows up every quarter?" he says of the way brokerages handle performance monitoring. He stresses that he thinks there are a lot of good people at his old brokerages, but that he has come to believe the system is bad.
"I still talk with my broker buddies at the firms and they're all unhappy with the antagonistic relationship between the product people and the brokers. Every time there's a meeting there's a takeaway in the current yield on the money market or a reduction in the payout or something else that works to your disadvantage, whereas at NRP we feel like we do have camaraderie and common business practices."