MutualFundWire.com: B-D 401k Execs Chin Stroke on T-Shares

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Thursday, June 1, 2017

B-D 401k Execs Chin Stroke on T-Shares

T-shares are a retail solution and are unlikely to gain a toe-hold in the 401(k) market. That is the takeaway from a panel of top B-D retirement executives at the SPARK meeting taking place outside of Washington, D.C. today and tomorrow. Morgan Stanley Wealth Management, LPL Financial and Cetera Financial Group are each looking at the use of T-shares by their advisors, executives told attendees at the conference of 401(k) recordkeepers and plan administrators.

Jon Anderson
Cetera Financial
Director of Retirement Plan Solutions

"We want more advisors to be fee-based and I don't see there is a need for T-shares," Jon Anderson, director of retirement plan solutions at Cetera Financial Group, told attendees. He added that it looks like T-shares are "something created to fill a need in the retail space."

Those retail roots created one major issue for T-shares, said Ed O'Connor, managing director and head of Morgan Stanley Wealth Management is defined contribution area. The new share class has no right of accumulation or right of exchange, he pointed out. Those are critical issues at Morgan Stanley but not ones that will necessarily keep T-shares of of Morgan Stanley's 401(k) shelves. "We may do T-shares and are looking at it," said O'Connor before revealing why the lack of those two rights is making Morgan Stanley's team think twice.

Ed O'Connor
Morgan Stanley Wealth Management
Head & Managing Director

"You would be shocked by how low the average commission is at Morgan Stanley. That is because of the right of exchange and accumulation," said O'Connor. He added that he understands why those two rights were left out of the shares, as under the DoL fiduciary regs advisors would have a conflict in recommending between shares from various fund families in which clients have and do not have existing shares. "Those are two things that bang up against each other," he explained.

William Beardsley, senior vice president at LPL Financial Retirement Partners, said that the independent BD sees A shares at NAV as its preferred solution for advisors. He does see one niche for T-shares in the space, however. That is the start-up plan area or conversions for micro-market plans with few assets. He noted that the challenge in the advisor sold market is the use of upfronts to compensate advisors for the work they perform in setting up plans or overseeing conversions in plans with few assets. In larger plans, the existing plan assets can be used to compensate advisors. Not so in plans with no assets.

William Beardsley
LPL Financial
SVP

"Upfronts are a way for an advisor to start up a 10-50 person plan," Beardsley said. "The way around that is for the advisor to bill for the time." One issue, though, is that some occasionalist advisors -- retail advisors who rarely sell a 401(k) plan -- is that recordkeepers are doing that work and not the advisor. That would leave them uncompensated for creating the plan. That may not discourage all plan creation as some advisors will do this to accommodate important clients, but it will likely lead to fewer plans being created in the future, he predicts.

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