Data & Research July 9, 2008

Advisers Help Keep the Communication Lines Open

A recent Spectrem Group study found that sponsors who use advisers as their main source of contact with providers are talking to providers more than others.
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Overall, most sponsors are satisfied with their provider relationships, according to the survey of 150 defined contribution plan sponsors. Most sponsors awarded their provider an A or B grade for performance in relationship management (32% and 43%, respectively). There were also some Cs (18%), as well as Ds and Fs (7%). Although the survey indicated overall satisfaction, those who did dole out the lower grades was up since 2005.

According to the survey report, a small percentage (15%) of respondents said their primary contact with the provider is through the adviser who sold them the plan, and a similar number (17%) prefer this method. Half of the sponsors said their primary contact with the provider is an account representative assigned to their company, and 17% said it is an account team. An individual account rep or account team is the preferred method of contact from a combined total of 77% of sponsors.

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Almost one-tenth of respondents (9%) said they do not have a primary provider contact and 8% said they deal with different contacts based on the issue. Spectrem says the pattern of primary provider contacts is unchanged since 2005 across all-sized plans.

Interestingly, those sponsors who have an adviser as their primary contact are the most likely to have had five or more contacts with their provider. Sponsors with an assigned representative or service team are the least likely to have had no contact over the past month.

As far as what type of adviser the sponsors use to select a provider, the results varied, and some respondents obviously used more than one or none at all. The larger number of respondents (25%) said they didn’t use an adviser at all. Third-party administrators (TPAs) were used by 25% of the respondents. Insurance agents/brokers and specialized pension/investment consultants were each used by about 20% of respondents and stockbrokers by 6%, the report said.

The majority of plan sponsors (63%) initiated more than half of all contacts with the plan provider over the past month, and as in 2005, that proportion is highest among mid-size and large companies. The report notes that more provider-initiated contact at smaller plans could be because of simpler plan designs and more proactivity from the advisers for small plans.

Communication with sponsors and providers could become increasingly important as fiduciary responsibility continues to be at the forefront of sponsors’ minds. The report says that regular updates on legislative and regulatory issues is likely to increase. Three-quarters of plan sponsors say they receive periodic information on legislative/regulatory issues, and 62% of them say this information is valuable to them. The report suggests that sponsors will be looking to both providers and advisers to help ensure and anticipate the compliance of their plans.

The Best Practices In Relationship Management report can be purchased at www.spectrem.com

In Practice July 9, 2008

Perspective: Articulating Your Services to Plan Sponsors and Participants

Our previous segment focused on establishing fees for the financial planning services you offer to retirement plans and plan participants. The next step explores how to articulate your services to said plans and participants.
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Seems pretty straightforward, right? But it’s actually one area that is often overlooked—which could put you at a disadvantage.

It is important, from the beginning of any relationship or business endeavor, to set the proper expectations up-front. This not only allows effective relationships to develop, but it can also protect you in our highly litigious marketplace.

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Many successful retirement plan advisers are setting these expectations using a short, one-page overview of the services they will provide at the plan and the participant level.

Here’s an example of what you might offer:

Services provided to the plan:

  • Consult with the plan’s investment committee to develop, review, and monitor the Investment Policy Statement (IPS) and to select the underlying investments accordingly.
  • Meet with the committee on a quarterly basis to review the IPS and, in conjunction therewith, make recommendations to the committee regarding funds that should be removed and replaced, if any, and the funds that should be offered in place of any removed funds. If circumstances warrant, meetings may be held on a more frequent basis.
  • Advise the committee regarding the establishment of a default account for participants (consistent with the Department of Labor regulation under ERISA Section 404(c)(5)) who fail or decline to give investment direction with respect to their accounts in the plan.

Services provided to plan participants:

  • Provide educational seminars on a quarterly basis on topics specifically tailored to the retirement plan offered by the company, with a focus on increasing awareness of the importance of saving for retirement and the plan features that help participants pursue their goals.
  • Assist participants with retirement income analysis illustrations based on the information they provide to us. In conjunction with this, we will help educate each individual on his or her progress toward meeting his or her retirement goals. We will also work to develop an action plan that each individual can implement to help in this process.
  • Offer financial planning services, for a fee, to all individuals who wish to engage our services. Our services take into consideration each individual’s goals, tolerance for market risk, taxes, net worth, and cash flow, and we provide tailored recommendations to address each individual’s short- and long-term planning needs.

Conclusion

In short, I would argue that the success of your retirement plan practice is directly correlated to setting proper expectations with your customers. Developing a service overview like the one above clearly delineates and differentiates what your firm brings to the table—and opens the door to new referral and rollover opportunities.

 

The previous articles in this series about incorporating financial planning services into qualified plans are available at:

Perspective: Establishing Fees

Perspective: Incorporating Financial Planning Services into Qualified Plans

Don’t miss the next article in our series, where we’ll focus on interfacing with participants.

Commonwealth Financial Networkª does not provide legal or tax advice.

Timothy Nihill is the manager of retirement products at Commonwealth Financial Networkª in Waltham, Massachusetts. He can be reached at tnihill@commonwealth.com.

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