micro scope | PLANADVISER March/April 2017

Thinking Efficiently

By Rebecca Moore | March/April 2017

Advisers can also help sponsors avoid common errors, he says. For example, the sponsor may neglect to deposit deferrals in a timely manner or miscalculate the safe-harbor match. According to Clark, micro plans usually need more compliance education.

Further, advisers can make an impact by providing education to, and getting to know, participants, Clark says.

With all the needs of small and micro plans, it is understandable that they may demand more of an adviser’s time. Clark says how advisers approach the two key tasks performed for the plan sponsor—monitoring the investment menu and communicating to participants—determines how much time they spend on the plan. Both Clark and Connelly say start-up plans require the biggest time investment.

Still, Clark says, more software is available now to aid in serving small plans than even five years ago. He says, since the Department of Labor (DOL) presented its final fiduciary rule, he has been seeing software firms jump into an aggregator role. At a minimum, this means they are integrating recordkeeping service provider data with standard investment reporting, he says. “In a nutshell, these service providers are offering the adviser one site for all their reporting needs to satisfy the fiduciary role for defined contribution [DC] plans.”

Connelly points to the expansion of digital services that help advisers serve small-plan sponsors—for example, mobile enrollment and participant education that is provided on digital devices. According to her, major broker/dealers (B/Ds) and wirehouses are also creating tools and services for advisers. Both she and Chepenik cite LPL, which has built out an entire suite of tools for advisers in the small-plan space.

Connelly also notes the advantages if the adviser signs on as a 3(38) investment manager for the plan, calling it a win-win for both. “The plan has additional protection, and it is helpful if the adviser is using the same lineups for his or her [other] small-plan business,” she says.

Pricing can be a challenge when these plans can take up so much time, but Clark and Connelly say advisers typically vary what they charge, tying basis points (bps) to asset level, starting at a minimum fee of $5,000.

Advisers often hear that small plans buy only on price, and, while some do overweight cost in their decisions, Connelly says, for the last several years her firm has seen many willing to pay for the value advisers contribute. “They may be price-sensitive, but not all are buying cheap,” she says.

Chepenik recommends that advisers be careful which small clients they take on. For example, does an adviser want to do a lot of work for a company that may be acquired in a year? In addition, he says, “If the plan sponsor is not committed to get employees into the plan and promote it, it becomes my problem, and I don’t want it,” he says. “You have to be intentional in your business plan and specific about which clients you pick up.”

Key Takeaways

  • Small plans may need more guidance and education.
  • Advisers should be diligent about helping small plans avoid common errors.
  • Today there are a host of software programs, tools and digital services to make it far more efficient for ­advisers to serve small plans.