Considerations for Advisers When Managing Staff

As retirement plan advisers build their business, there are many considerations about how to add, manager and train staff.

Following is the compilation of 2016’s six “Practice Development” columns from the PLANADVISER magazine. This year’s theme was on developing your staff.

Guiding Your Business’s Growth
No matter the size of your firm, if you are thinking about expanding, you face the same basic questions: Is it time to expand? Can you afford to expand? And, if so, how do you proceed? This article discusses the first two questions. “How” will appear over the next five issues.

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A variety of factors may prompt an advisory practice to expand. These include overextended staff, underserved clients and opportunities outside your market. Additionally, new business may call for competencies lacking in your current  employees, says Daniel Bryant, CEO of Sheridan Road Financial, headquartered in Chicago. “As you take on more clients, and especially larger and larger clients, you need to have broader, deeper skill sets,” he says.

For example, plan sponsors’ growing demand for 3(21) and 3(38) fiduciary advisers may nudge an adviser firm to create or expand fiduciary offerings. Heffernan Retirement Services, when opening its New York City office, hired an Employee Retirement Income Security Act (ERISA) attorney as one of the three employees, says Blake Thibault, managing director, in San Francisco.

Adding people, of course, brings other requirements. As a firm grows, a human resources (HR) department may be needed. To attract top talent, a firm must consider what extras it can offer, including benefits and intangibles such as career path.

Bryant observes that such steps may exceed most firms’ ambitions. “Many people in the retirement industry want to work with their client and give them the best advice they can on their 401(k) plan, and it’s very difficult to do that if you now have to deal with leases, health insurance, benefits plans, profit sharing, bonuses, IT,” says Bryant. “I think that’s the biggest impediment that keeps people from expanding: Do they really want the headaches involved in running a real business, vs. a practice?”

According to the experts, revenues ultimately dictate most firms’ staffing plans. When the money is there, they can hire. Thibault says Heffernan had followed that model. “When we first started out, expanding staff was based on revenue. And, when we had a certain amount of revenue, we felt that was time. Then we realized it was more based on the number of clients we bring on and the workload per client.” When the average adviser needs to handle more than 35 clients, expansion may be needed, he suggests.

 Still, to do so, most firms apply the revenue model, typically hiring one by one—a slow go, Bryant says.

“You have to be willing to have capital to be able expand, then expect a return on your investment over time,” says Randy Long, managing principal of SageView Advisory Group, headquartered in Irvine, California. “Sometimes it can take two or three years to get that return back.”

Equally important to free cash flow, he says, is the people. “You need to make sure you have the right people on your team. A lot of that is spending time in profiling job descriptions and looking at what each person’s role is.”

NEXT: Recruiting new talent

 

Scouting for Recruits
Enrollers can make good advisers, advisers good support staff, and your best source for referrals—what adviser firms look to first when seeking new hires—could be right down the hall. So say senior retirement industry executives, who shared this wisdom and more about recruiting good staff for your practice.

Steve Cunha, founder of the retirement plan services department at Baystate Financial Services LLC in Wakefield, Massachusetts, has a particular sweet spot in mind when hiring new advisers: good skills plus a minimum of three to five years working directly with qualified retirement plans. “I look for someone who’s been around long enough to know he wants to be in this business, to understand the overall picture, but not so long he’s accumulated bad habits you have to ‘untrain’ him of,” Cunha says. 401(k) plan enrollers—i.e., educational specialists—tired of the road warrior lifestyle can be a good fit, he says.

Similarly, advisers in your own firm who discover “they’re just not the hunter type, not really the marketing type—they have more of a support, team-member personality” may excel in other roles, Cunha says. He seeks referrals from co-workers but also from DCIO [defined contribution investment only] wholesalers, who are situated to know of advisers and well-credentialed call center representatives who might want to switch.

The advantages of such referrals are many. “You can speak to their former employer, get testimonials, references. They’ve got licenses; you can check their background. So there’s a track to run on there,” Cunha says.

Perhaps for those reasons, 87% of respondents to PLANADVISER’s recent Recruiting Techniques Survey favor recommendations when hiring, well over their second choice—social media—at 33%.

Whatever way Russell Warye finds recruits, he puts character and common values first. The president of Benefit Partners Financial Group LLC in Libertyville, Illinois, then looks for consistent success in school or former jobs. Candidates should also be well-spoken and present nicely, he says. “If they have these characteristics, I don’t need experience; the rest I can train.”

Advisory firm Janney Montgomery Scott, which combines experience and character in its ideal-employee profile, also stresses fit, says Jerry Lombard, president of the firm’s private client group in Philadelphia. Candidates spend a day at the firm, meeting with everyone, from executives to support staff.  The person must be collegial, “because that’s the culture we believe in,” Lombard says.

While firms are assessing candidates, that exercise is often mutual. Because of the growing need to replace advisers who are retiring, competition, especially for young recruits, is strong. “What they’re looking for in an employer is different than, say, my Baby Boom generation,” Lombard says. This means a firm should adopt a flexible outlook, a willingness to change over time. For example, “[Millennials] want to work for diverse organizations, so we’re making sure we’re an employer of choice when it comes to talented young people,” he says.

Janney’s approach appears to be working. “We seem to have no trouble finding good talent,” he says.

NEXT: Training Advisers

Advisers in Training
For top adviser firms, effectively training new staff is critical to ensuring the practice’s success—but it goes beyond just teaching them the required information.

Sentinel Benefits & Financial Group of Wakefield, Massachusetts, moves retirement plan adviser trainees through a multi-year program combining study, exposure and experience, says Eileen Greenspan senior vice president, retirement plan advisory services. Formal training starts with an approximately two-year general immersion in Sentinel’s business, giving trainees the chance to absorb the firm’s culture while learning how different investment divisions operate.

The specifics of retirement plan advising are taught through a credentialing and mentoring process, Greenspan says. “Before a plan adviser can advise, he must have at least a Series 65 [securities] license. Once obtaining that, he can explore all the products [Sentinel] has to offer,” she says. To learn about plan consulting, trainees are teamed with a mentor. “They tag along with our more senior plan advisers to as many client meetings as possible” and are asked to help prepare presentations to sponsors and participate in employee education meetings, she says.

To ensure mastery of their trade, the firm later requires that they earn an Accredited Investment Fiduciary (AIF®) designation and encourages additional certification. Learning is further supplemented with webinars about investments, at least quarterly meetings run by the firm’s chief investment officer (CIO) and bi-weekly adviser team meetings where they share their experiences and learn from one another.

Pension Architects of Los Angeles takes a less formal but, nonetheless, still intensive approach to training. In their first year, new advisers learn what methods make the firm successful and unique, says partner Philip Steele. “We want them to understand and appreciate how we view qualified retirement plan design and marketing, so they’ll carry the torch in the same way all of our teammates do.”

Foremost, this means instilling the practice’s core principles—“that people have a better chance of a sustainable and predictable retirement if they’re working with us than perhaps former relationships,” Steele says. Senior practice members make the point by preaching what they believe and why they believe it, he says. “Proof is usually data, metrics and results you can use to say, ‘This is why we put so much energy, and focus our resources, into this part of it instead of that part of it.’”

When given a pile of case studies of clients and new plans to review, trainees are asked to think critically, Steele says. “We want them to study that and start feeling the rhythm of each of these designs and understand the common threads they see regardless of plan size, industry or demographic specifications.”

An important goal of hiring and training is retention, both executives believe. Steele points to the cultural as well as the financial losses that result from turnover. “The more you can hire people who’ll be around for a long time, the more it helps the culture of the firm. And I think the happier the culture, the better the work you do for the client.”

NEXT: Assigning Tasks

Dividing Up the Roles
Because a retirement plan adviser firm’s greatest resource is its staff, how you segment employees’ talent to maximize their value is critical.­

For some advisory firms, specialization is where you start—at least as a long-term goal. “It hit me years ago that it was impossible to be an expert in all the different areas of financial planning,” says Brian Allen, a founding partner and president of Pension Consultants Inc. in Springfield, Missouri. This insight led him to develop a business model where teams were built based on function—i.e., investments, compliance, participant education and vendor selection. “We’ve only had this total structure in place for maybe 30 months,” Allen says. “So, as each of these disciplines has crystalized, we’ve developed very specific job duties. We’ve been very stable with [the roles].”

Advisers should also consider skill levels when assigning responsibilities. Allen used to have new employees attain licensing and sometimes shifted people’s roles as the team grew. Today, though, his firm hires experts from the start. J.D. degrees are needed for the ERISA (Employee Retirement Income Security Act) compliance team and a Certified Financial Analyst (CFA)  designation to serve on the investment team as either a fixed-income or equity analyst.

Graystone Consulting Cincinnati also seeks experienced support staff, which minimizes on-the-job training. “We tend to hire people with a lot of seniority instead of training people from scratch,” says Joel Handorf, first vice president, institutional consultant and senior portfolio manager.

And of course, what responsibilities need to be filled is somewhat dependent on how much is handled in satellite offices versus home office. While Pension Consultants’ manages its own operations, Graystone can leave many of those duties to parent company Morgan Stanley and focus on clients, Handorf says.

Also to be considered when a firm divides responsibilities is a practice’s client base. Graystone Consulting Cincinnati assigns service teams based on a client’s needs. Handorf himself has found a niche with physicians’ practices that are hold-outs from joining large medical systems. Medical office plan design is very different than design for manufacturers, he explains. Likewise, the firm’s other institutional consultants each have focus areas: fiduciary services, investments, plan design, employee education and financial planning.

Once service teams in the Graystone Cincinnati office are formed, they generally stay intact. Reviews are important—the team has six-month formal reviews—but consistency is key, so these do not lead to reassignments, Handorf says. “Most projects we’re working on are much longer-term in nature than that. Movement typically occurs when the current full-time analyst is ready to advance toward institutional consultant.”

NEXT: Ongoing Education

Motivating Your Staff
How a retirement plan adviser firm approaches ongoing education begins with company culture. At least that’s true for Francis Investment Counsel and Channel Financial, two independent firms whose training philosophy reflects their companies’ vision.

The word “education” pervades Francis Investment Counsel’s website—much because the firm was started to teach middle-class Americans how to save for retirement, says Michael Francis, firm president and chief investment officer (CIO), in Brookfield, Wisconsin. So it stresses education for its 16 team members, providing a three-tiered system to develop them professionally and personally.

“External professional development” refers to acquiring and maintaining credentials—especially Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP)—which Francis believes are crucial in the field. “We have a fairly significant budget every year for training,” he says. The firm keeps team members current by sending them to the range of educational opportunities their specialization provides. Even still-uncertified educators must meet the same continuing education requirements, so they can grow in their role, he says.

In “internal professional development,” the employees learn from each other. At day-long quarterly companywide meetings, they discuss industry trends, plus explore some point from the firm’s operational manual, to strengthen their compliance skills. Additionally, the education team meets for a half day every month, with each member presenting a personal case study from the field and receiving input—and maybe counseling tips—from the rest.

The “personal development” piece is a wellness program. “We’re trying to get people more focused on healthy living, and being better stewards of their own situations as well,” Francis says. So, the firm arranges for annual wellness exams and contributes to employees’ health savings accounts (HSAs) for points that they earn exercising, seeing a financial planner, etc. “I think the people who work here stay because we keep it interesting. They can continue to learn and grow,” he says.

Less methodical—or maybe more organic—is ongoing training at Channel Financial, in Golden Valley, Minnesota. “The culture comes before anything else,” Partner Jim McDonald explains its hiring, and training, philosophy. “There are no egos, we don’t take each other seriously. We’re free to point out each other’s mistakes. I hate to say, but it works very well.”

In what he calls this “fun, hardworking” environment, staff feel able to self-present the floating “D.A.”—or “Dumb A__”—Award for some personal gaff. Education takes many forms, McDonald suggests, and calling themselves out cultivates humility. “That’s what we remind everybody—to keep humble with the folks we work with.”

As to formalized training, “We’re not big enough to have ‘this is how we train everybody,’” he says. Not that size would change their perspective. “All [11] of us at Channel come from large corporate cultures where everything is structured. In the relationship business, relationships are not always a repeatable process. It’s having the person understand what it takes to meet this particular client need.”

Hence, Channel’s training is more dynamic. Staff teach to their specialties, as needed, tuning their approach to the learner’s personality. Employees are urged to learn by doing and to not fear making decisions. Everyone learns at the regular GSD (Get Stuff Done) meetings where the last two weeks’ business gets discussed, McDonald says.

NEXT: Seamless client service when someone leaves

Minimizing the Loss When Someone Leaves
When a retirement plan adviser leaves your practice—whether moving on, going back to school or, himself, retiring—his clients may consider leaving as well. To ease the transition, and help ensure clients remain happily with your firm, experts suggest the following.

Kathleen Kelly, managing partner at Compass Financial Partners in Greensboro, North Carolina, believes in “a preventive approach” to keeping plan sponsors onboard. From the start, “we make sure the client understands its relationship is with our firm,” she says. This means the client is shown that a team services its needs. “If the client truly feels there’s an organization behind that one [adviser] that looks out for [its] needs, there’s an easier transition,” she says.

ProCourse Fiduciary Advisers LLC in Carmel, Indiana, goes a step further in providing continuity. From the get-go, two advisers attend each client meeting, says Doug Prince, CEO and a principal at the firm, “so if someone did leave, it’s not a brand new face coming in and saying, ‘Hey, we’re brand new—we’re going to take care of you.’” No adviser has left his firm, he says, but if one did, one of the principals would meet with each client and the replacing adviser. “We’d go through a history—talk about what the client valued the most out of the relationship with the other [person],” he says.

Continuity in service delivery is also important, Prince and Kelly agree. Each of their firms has developed a consistent process to help advisers give all clients the same level of service. This way, if a team member does leave, Kelly says, “a new person can step in and quite seamlessly have everything in place, at his fingertips, to know historically what has been done with the client.”

Client history, for any adviser taking over an account, is a vital tool. So is a good mechanism to access and study it, says Sean Patton, a senior consultant and founding partner at Westminster Consulting in Rochester, New York. “Here, I can go into our system and see all of the notes; it gives me a sense of that 10-year relationship so I can carry on,” he says.

Patton believes replacing any successful advisers depends on re-establishing trust, which inevitably will be shaken when the person leaves. “I think that’s probably the biggest concern from the plan committee and plan sponsor,” he says. “‘Will that new person have that same expertise, and will I have that same chemistry and trust with him?’” For that reason, some plan committees perform a request for proposal (RFP)—especially if the adviser firm is smaller, “when there’s not depth of the bench behind them,” he says.

Not surprisingly, good communication is critical throughout the changeover. Kelly says her firm informs clients in advance when an adviser plans to leave. Then it follows up with them directly, afterward, to make sure they are happy. Ultimately, she says, “people want to know everything is fine, that they’re being looked after, and their participants are being taken care of and that they won’t feel the impact of a change.”

Expect More Varied ERISA Litigation in 2017

Aside from traditional allegations of excessive fees and mismanagement of company stock, ERISA litigation in 2016 included challenges to fund types, fiduciary processes and provider arrangements; expect more to come.

Right out of the gate in 2016, a number of Employee Retirement Income Security Act (ERISA) lawsuits were filed. The pace of litigation gained more momentum throughout 2016.

Aside from the typical excessive fee cases and company stock litigation of the past, Charles G. Humphrey, Employee Benefits and ERISA counsel at Fiduciary Plan Governance LLC, who is based in Buffalo, New York, says, “I think if you look at Bell v. Anthem, White v. Chevron, Ellis v. Fidelity and Johnson v. Fujitsu, I see something I haven’t seen in great volume before—a probing at quality of fiduciary process.”

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Stephen Rosenberg, Esq., partner at The Wagner Law Group, who is based in Boston, adds, “The year 2016 saw an expanding panoply of theories for attacking investment options and other aspects of the administration of 401(k) plans, and more of the same can be expected going forward.” Humphrey notes, for example, in Bell v. Anthem, Anthem offered a Vanguard fund charging 4 bps and was called out for not using its bargaining power to get a similar 2 bps investment. In the Chevron and Fidelity cases stable value fund use as opposed to money market fund use was questioned; a case against Intel filed last year included an allegation of too many nontraditional assets in its target-date fund (TDF) offerings; and the Johnson case challenged the use of custom TDFs.

Nancy Ross, partner and head of ERISA litigation practice at Mayer Brown LLP in Chicago, adds that cases filed in 2016 have also targeted fee disclosures and arrangements between plans and service providers.   

Ross says her firm is seeing a lot of sponsors who make changes being targeted with lawsuits claiming it must have been wrong before. “These are not remedial measures, but plan sponsors genuinely trying to improve their plans. They are improving on a perfectly acceptable arrangement,” she states. An example of this is the recent lawsuit filed against Starwood Hotels. In it, plaintiffs note that Starwood did reduce its fees, but for five years prior to that, participants paid excessive fees.

Targets of litigation have also changed. Ross notes that in 2016, not only corporate plan sponsors, but university and college retirement plan sponsors were hit with excessive fee suits. And, while not new to 2016, church plans have faced lawsuits challenging their non-ERISA status. A split in the circuits has led to cases being taken up by the U.S. Supreme Court.

“The Supreme Court’s decision to grant certiorari with respect to the definition of church plan under ERISA and the Code could produce a significant increase in litigation against these church-affiliated organizations if the Supreme Court agrees with the three Circuit Courts of Appeals that have addressed this issue and concluded that the long-standing view of the Internal Revenue Service (IRS) was incorrect and defined benefit plans of these church-affiliated organizations are not church plans,” says Barry Salkin, of counsel at The Wagner Law Group, who is based in Boston.

NEXT: Drivers of new litigation trends and surge in cases

Ross believes one thing driving new allegations in ERISA fee suits is the Supreme Court decision in Tibble v. Edison, in which it said plan fiduciaries have an ongoing duty to monitor investments. “Plaintiffs are tacking on claims of failure to monitor investments over the years,” she says.

Humphrey says this is “low hanging fruit” if there is an absentee fiduciary with no record of selection and monitoring of service providers and investments.

According to Rosenberg, in 2016, litigation continued apace over dramatic declines in company stock prices and their impact on the value of retirement accounts. The highest profile court decision in 2016 in this area was likely Whitley v. BP, PLC, in which the court held that there was no viable defensive action the fiduciaries could have taken to protect the value of the company stock holdings in the plan that would not have simply inflamed the collapse in the stock price, and that this precluded liability for breach of fiduciary duty due to the loss of value in the holdings of company stock.

Whitley was revived by an appellate court after the U.S. Supreme Court’s decision in Fifth Third v. Dudenhoeffer, which rejected the notion of plan fiduciaries having a presumption of prudence and set a new standard for pleadings in stop-drop cases: namely, Rosenberg notes, the need for plan participants to prove, for their stock drop claims to proceed, that plan fiduciaries could have taken an action during, or before, the collapse in value of company stock that would have made the situation better, and not worse.

While the challenges portend to be targeted toward protecting the interest of plan participants, Ross says there are dollars here for the plaintiffs’ bar, and settlements are fueling the fire. “Attorneys want in on the action. In addition, the plaintiffs’ bar has more outreach—they are not just putting ads in local newspapers, they are trolling for business on Facebook,” she says.

Humphrey adds that lawsuits have had some success and plaintiffs’ attorneys keep hammering away, especially big plaintiffs’ firms that have resources to pursue these plans. He says these attorneys are trying to make law. “What is nature of fiduciary responsibility? Did you do your job well enough? We’ve never had specifics in ERISA and never had the kind of case law that makes law,” he says. “Now we will get that. It will be more difficult for plan sponsors to deal with and they will have to factor that into plan governance.”

Humphrey adds, “Hold on to your seats at this point, and hope courts will take a reasonable approach with their opinions.”

NEXT: What’s ahead for 2017?

Ross says in 2017, ERISA litigation will not just question fees, but prudent administration, investment selection and types of investments. It will be much more of the same, she notes. She adds that the plaintiffs’ bar will be looking at new areas to attack. “We will see a continuation of the examination of relationships plans have with service providers,” she says. “My advice to plan sponsors is complete disclosure.”

Humphrey agrees there will be more of the same—fee cases will continue to roll in. And he believes more cases will focus on the quality of decisionmaking, as he says, “those bringing them are kind of experimenting.” Humphrey also doesn’t see stock-drop cases going away, as “Dudenhoeffer really provided a solid defense.”

Salkin says, “We can expect to see more litigation with respect to Code Section 403(b) plans alleging various breaches of fiduciary duty. This is a clear example of low-hanging fruit which is ripe for copycat litigation. While 403(b) plans have become closer to 401(k) platforms since the Pension Protection Act of 2006, there were significant differences prior to that date, so it remains to be seen whether those fiduciary breach claims will stand up.”

He also predicts the various defined benefit plans that engaged in derisking activities such as temporary lump-sum windows are a potential target of litigation, although these may be difficult cases for plaintiffs to prevail. “The allegation will be that there was a breach of fiduciary duty in disclosing to plan participants the advantages and disadvantages of selecting a lump sum,” Salkin says. “While in all cases some disclosure would have been made, the allegations will be that because the plan sponsor had the objective of maximizing the number of participants who would elect lump-sum distributions, the disclosure to plan participants was one-sided to some degree.”

Salkin adds that there will also be more cases exploring the contours of Article III standing, addressed earlier this year by the Supreme Court in Spokeo v. Robins, in which it held that Article III standing requires a concrete violation even in the context of a statutory violation. Salkin notes that two appellate court decisions have already addressed the application of Spokeo: the 8th Circuit in Braitberg v. Charter Communications, Inc. and the 5th Circuit in Lee v. Verizon. “Since plaintiffs will no longer be able to allege that a violation of ERISA automatically constitutes an injury in fact for purposes of Article III standing, there will likely be more motions to dismiss because of lack of Article III standing,” he says.

“The DOL [Department of Labor] fiduciary rule is a bit of a wild card because there is no assurance that it will continue, or at least continue in exactly the same form, under the Trump Administration as is scheduled to take place on April 10, 2017,” Salkin says. “It was intended to allow IRAs and non-ERISA plans to maintain civil actions; those actions will be forthcoming. Additionally, by increasing the number of entities that will be treated as fiduciaries, the likelihood is that there will also be an increased number of lawsuits in which a party is joined by a defendant alleging co-fiduciary liability.”

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