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.

For example, a number of FIA institutional clients have asked the firm to handle the personal assets of employees. In addition to target-date funds, many of FIA’s clients are considering some sort of managed account program for their plan.

“Their needs vary from investment advice and retirement planning to broader financial planning.  We currently provide investment advice, but are considering adding more planning services,” said Wetzel. “And what’s needed at the individual level is different than what is needed at the plan sponsor level. We realize the advisors that can service the space would be those with individual consulting skills, such as CFPs and CPAs.”

In response, the firm, with $24 billion in institutional assets and $500 million in individual assets under management, is expanding its individual advisory practice.

“We’re trying to bring on a couple of new advisors or acquire a small firm to service the individual marketplace,” Wetzel said.

In the last 18 months, Wetzel and one of his partners, Christopher Rowlins, are increasingly seeing institutional clients require their advisors to declare their fiduciary status.

“Disclosure on fiduciary status within the institutional space is an impetus for the consolidation. It’s more complex to stay on top of the rules and regulations and signing on as a fiduciary will force some advisors to re-evaluate their business model,” Rowlins said. “It has become an absolute baseline requirement. Advisors that don’t want fiduciary status will get out of the industry.”

With the defined contribution market poised to increase to $3.5 trillion in 2015, a decrease is anticipated in the number of individual practices that are part-time focused on retirement.

“Advisors will have to decide whether they want to be an institutional provider or focus on individual wealth management because it will be more difficult to do both over time,” said Dalessio.