To say that the industry's segmentation and understanding of defined contribution plan advisers is crude would be quite an understatement. At the grossest level, the industry looks at whether advisers are commissioned or fee-based and whether they serve the small-plan market or the large-plan market.

As the profession evolves, providers need to refine their segmentation of advisers to better serve them and to grow their businesses, while advisers themselves need greater understanding to achieve self-actualization.

Certainly, the conventional ways in which the industry segments DC advisers are good starting points, but they serve very little purpose if we do not go further.

The fastest growing segment of the market is the hybrid model, under which the adviser does both fee- and commissioned-based business. A good rule of thumb is that just less than 10% of all advisers are fee-only.

There are big differences among various types of advisers with broker-dealers, including wire-house, independent, bank, insurance and specialty. However, there are more similarities among DC specialists across an organization than among advisers within an organization not focused on the DC market.

Market segmentation is also useful, but our thinking needs to be refined beyond the "above and below $10 million" threshold. The needs, service models, pricing and providers are similar for plans with assets of $500,000 to $3 million, $3 million to $7 million, $7 million to $25 million, $25 million to $75 million, $75 million to $250 million and over $250 million. Most advisers can serve no more than two or three of these segments effectively and profitably.

But DC advisers have very different business models and personalities depending on their backgrounds. They can be categorized into three groups:

* The Engineer. These advisers love to go deep into plan design and like nothing better than to create intricate processes that show off their outstanding and intimate knowledge of ERISA and fiduciary liability. They measure success by the elegance of the plan design and protection against risk.

* The Intellectual. Advisers in this category are closet portfolio managers, most interested in delving deep into investment analysis. Their value proposition is built around designing efficient and cost-effective portfolios. They measure success by how much they protect their plans and participants in down markets, while enjoying moderate success in good times.

* The Salesperson. These advisers live for the hunt. Once a "kill" is completed, they cannot wait to pursue the next quarry, spending little time on their most recent victory. They measure success by the number of plans and assets under management.

Many successful advisers exhibit more than one personality, although one trait always dominates: Very few advisers and organizations enjoy all three. Similarly, most providers are successful selling to one group and possibly two, but none can hope to serve all three effectively.

While this analysis is just a start, it will hopefully spur discussion beyond the current elementary segmentation of DC advisers. Providers and advisers that go beyond the industry's current crude methods of understanding DC advisers will enjoy a significantly greater degree of success and fulfillment.


Barstein is the founder and executive director of The Retirement Advisor University at the UCLA Anderson School of Management Executive Education. Reach him at

DC plan sponsors will focus on fees this year

Defined contribution plan sponsors expect to focus more on plan fees this year, according to a survey by Callan Associates.

Plan sponsors' highest priorities, in order, are to ensure that fees are reasonable, well monitored and documented, and clearly communicated to participants. "Equitable fee payments" ranked fourth in the survey. Nearly 85% of DC plan sponsors have calculated their plan fees within the past 12 months and 84% of those benchmarked their fees.

The survey found that DC plan sponsors face several possible challenges this year, with inflation ranking high among their concerns. As a result, real return and TIPS funds were the most commonly added options in 2010 and will likely keep that spot this year.

The use of unbundled structures is on the rise - although partially bundled plans still dominate at 49.4%, fully unbundled plans increased from 29.9% in 2009 to 34.9% in 2010. The unbundling trend may continue as large plan sponsors seek to reduce participant costs, spread fees more equitably and increase investment flexibility.

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