Here is an article I wrote in May 2010.  This was published on the RIABiz website that month.  In this article, I outline why I feel most registered investment advisors can gain additional assets, despite the new regulations proposed by the Department of Labor.  For individuals, it may be hard to tell the difference between an advisor and a Registered Investment Advisor.   There is a vast difference .   After reading this article, individual investors, clients, brokers and advisors will likely see another clear distinction between brokers and advisors.

UPDATE. A very lively thread has unfolded on the RIABiz website from this article I wrote.  At the bottom of this screen there is a link to the article.  See the comments from several industry professionals chiming in with their opinions.  This is clearly a hot-button issue for the investment community.

Why gathering big-time 401(k) assets and charging regular fees is well within reach for most experienced RIAs

The obstacles are overrated and the opportunity is underrated

There has been a great deal of apprehension, to say the least, about the proposed Department of Labor regulations for brokers and advisors operating in the 401(k) advice marketplace.

These proposals, whatever their final form, will totally reconstruct how broker-dealers allow their representatives to sell and advise company retirement plans. In addition, the final outcome is certain to change the way current company retirement plan participants choose to roll over their company retirement plan accounts later.

Acting as a fiduciary … level compensation … compensation disclosure … computer models…no wonder the broker-dealer world is concerned. That sounds like a lot of work for a broker-dealer representative to go through in order to provide the same kind of retirement plan investment advice any RIA can provide right now.

I am all for less stress in my business life.

To ignore is bliss

I have been able to totally ignore what new proposals the Department of Labor has in store for the old-fashioned broker-of-record on company retirement plan accounts. My firm is already positioned in a much better business niche providing advice to the company retirement plan participants that I want to work with.

RIAs can provide individualized retirement plan investment advice to their current clients on the menu of mutual fund options in the clients’ company retirement plans. They can also do the same thing for the clients’ working spouses.

When they are finished expanding their current client investment relationships to include company retirement plan advice, these RIAs can prospect all the other professionals who work at the same company as their clients and clients’ spouses and open those company retirement plan investment advice relationships as well.

I have always wondered why RIAs battle every day of their lives to open up small after-tax brokerage accounts with new clients when, at the same time, their existing clients have retirement plan accounts that are well into the hundreds of thousands of dollars in size.

In the online classes I teach and in the public seminars I give for professional investment advisors, I see and hear about RIAs competing with every possible financial services provider—-banks, insurance companies, annuity companies, mutual fund companies, discount brokerage firms, etc.—for the small balance after-tax brokerage accounts.

RIAs don’t articulate a plan

I never hear an RIA articulate to me a logical, organized and disciplined account management and prospecting plan to manage the company retirement plan accounts for these same clients and prospects that are multiple times bigger than the after-tax accounts.

Add a working spouse to the equation, and most any RIA with even a few years experience could easily find $1.5 to $2 million dollars in company retirement plan assets to manage for a fee in every client household he or she has a relationship with right now.

In my experience, expanding my client investment advice relationships to include the company retirement plan account assets has been a better use of my time than worrying about my fiduciary liability or about how level my management fees are.

I could say the same thing about computer models. But I don’t use them.

For the last eleven years, I have built a 401(k) advice niche business operating as an independent SEC-registered RIA providing investment advice to individual company retirement plan participants.

The key phrase here is “individual company retirement plan participants.” My retirement plan advice clients are the individuals who participate in company retirement plans—-not the company retirement plan itself.

Bagged-lunch seminars are not required

I have never attended a Benefits Committee meeting or submitted a request for proposal. I have never given a bag lunch seminar over lunch hour in the company cafeteria. Hell, I don’t even have a PowerPoint presentation on the topic.

In the summer of 1998, my technical analysis database provider began daily mutual fund pricing and charting services. At that time, I began to ask my client base — lawyers, doctors, Fortune 500 executives — if I could get a copy of their default menu of mutual fund options in their company retirement plan.

The sales pitch at that time was simple enough. I made the case to my clients that I was curious if I could apply the same stock market risk-management techniques and tactical asset allocation strategy that we used outside of their company retirement plan accounts to the monies inside their company retirement plan accounts.

As it has turned out, the stock market risk-management game plan is the same one that I always used for my client stock and ETF accounts. Tactically managing a default menu of mutual funds is just as easy. I use relative strength tools to identify the asset classes that are outperforming the stock market benchmarks.

In an offensive stock market environment, I know exactly what asset classes to own so the individual mutual fund picks are easy. In a defensive stock market environment, it does not matter what the computer model says you should own. Money market is the best investment available on any company retirement plan menu in times like that.

New information

I think it is completely new information for most independent RIAs to think of the asset base in their current client’s company retirement plans as a pool of money in desperate need of an advisor.

My current retirement plan advice clients have signed a discretionary advisory agreement designed by my compliance firm. As per my SEC audit of a few years ago, if I have a client’s company retirement plan log-in and password information, I am deemed to have discretionary authority in that advisory relationship.

My management fee schedule for my company retirement plan advice accounts is the same scale as my ordinary after-tax RIA managed accounts.

I don’t custody the money in the company retirement plan account. The retirement plan account stays at the company retirement plan provider—-either the main company retirement plan provider and or the self-directed brokerage account provider.

What’s more, I also think that most independent RIA’s would be shocked to learn that my advisory fees for this 401(k) advice niche business are paid to my firm directly from the client’s money market accounts inside the company retirement plan. That’s right; my advisory fees are paid in pre-tax dollars directly from the company retirement plan provider.

Major providers grant third-party access

Almost every major company retirement plan provider has policies and procedures in plan to allow third-party access to individual company retirement plan participant accounts.

When you add to that the fact that most large company retirement plans now include an SDBA option (self-directed brokerage option), most of what RIAs need now to enter the retirement plan advice business is already in place for the majority of their client’s and prospects.