As the one credited for making the term "blind squirrel" famous for advisers that only have a few 401(k) or defined contribution plans, you would think that I would be advocating for their demise and elimination. No doubt that to be a successful DC adviser you cannot dabble and you need to focus on trying to get at least 10 plans and $30 million in plan assets as quickly as possible. Many of the problems facing the DC market are caused and epitomized by blind squirrels. Yet, blind squirrels are vital to the continued growth and success of the DC market, as well as the hope that we can help people retire more successfully.

Of the more than 600,000 plans with between $250,000 and $1 million, 75% of plans that have an adviser are serviced by a blind squirrel or one that has fewer than five plans - that percentage is even higher for smaller plans. When a plan sponsor becomes more sophisticated and switches advisers, the new adviser tends to be more experienced. These blind squirrels usually do not have the time or expertise to properly service employers. Plan participants are often used by regulators and direct sold providers as reasons why advisers are evil and should be regulated out. Providers' costs to close, service and retain plans sold by blind squirrels are higher. Broker-dealers are loath to let less experienced advisers be fiduciaries, as they expose the distributors to significant liability and compliance headaches, creating specialty groups to whom they try to push larger - if not all - DC plans. So why can blind squirrels be important to the DC industry?


Humble beginnings

First, remember that every adviser at one point was a blind squirrel. In a perfect world, advisers would be required to get proper training and credentials, plus intern or partner with an experienced DC adviser before they are allowed to work with a DC plan, but there is no such thing as a perfect world. Without new blood in the DC adviser ranks, plan sponsors and participants would have fewer choices, especially small and start-up plans which are not attractive to experienced DC advisers. Some might even choose not to start a plan or eliminate the one they have. Most of the larger record keepers get a majority of their business from blind squirrels driven by their retail wholesalers.

Broker-dealers are eager to help their second- and third-tier advisers move up and into the DC market, as they see it as a good way to increase revenue and cross-sell other products and services to the employers and their employees.

So what's the answer? Relationships drive business, so small and mid-sized companies will not abandon advisers they know and trust on a widespread basis, even if that might make better business sense.

Broker-dealers are starting to step up by creating special DC groups, educating and training less experienced advisers and brokering deals between the two groups.

But remember that only 35 broker-dealers have at least one person dedicated to the DC market. The hundreds of other firms with at least 250 registered reps are clueless.

Record keepers want to focus on experienced DC advisers. But, there is little, if any, real action like higher compensation to wholesalers for plans sold to this group. With pressure on annual sales numbers, very few, if any, record keeper sales managers will risk taking short-term risks for longer-term rewards.

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

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