Practice Management October 8, 2020

Why LinkedIn Premium Reigns Supreme for Financial Advisers

Putnam executives Mark McKenna and Rene Taber explain why LinkedIn has emerged as the social media platform of choice for financial advisers—and why many advisers are now paying for LinkedIn’s premium features.
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Putnam Investments has published an update to its Social Advisor 2020 Study, leveraging new pulse data generated in a second survey of advisers taken this year after the onset of the coronavirus pandemic.

The research shows that 55% of advisers who have initiated new client relationships during 2020 say they had increased their use of social media during the pandemic. In an interview with PLANADVISER, Mark McKenna, head of global marketing at Putnam, and Rene Taber, Putnam’s research director, highlighted just how much the times have changed in terms of advisers’ social media use.

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McKenna and Taber say one of the crucial findings of the study is that advisers have proven adept at managing their practices through the public health crisis by finding additional ways of engaging their clients, including greater use of social media. Notably, 84% of respondents expect that the changes made to their communications methods will largely be kept intact moving forward, even after the pandemic is conquered.

“It is encouraging that some of the changes advisers made to how they use social media in their practices during the pandemic will become foundational for their communications with clients on a go-forward basis,” McKenna says.

The study shows that nearly three-quarters of advisers (74%) rely on direct messaging through key social network platforms to communicate with clients and prospects. Of this group, 94% report gaining new assets. The survey shows 50% now use direct messaging on LinkedIn, with 92% gaining assets; 38% use Facebook for direct messaging, with 98% reported gaining assets; 33% use Twitter for direct messaging, with 98% gaining assets; and 26% use direct messaging on Instagram, with 98% gaining assets.

“This is an interesting development because there had for a while been this idea that social media is a place to build your brand and get your name out there, but increasingly, it is a direct communication platform for advisers to reach their clients and prospects,” Taber says.

“It speaks to an evolving level of engagement,” McKenna agrees. “We’ve always seen a highly active, though small, group of advisers using social media in this way. I think the real shift we are seeing right now is that the industry has truly acknowledged the power of direct messaging on these platforms, and particularly on LinkedIn.”

The Putnam pair say that advisers who have taken the extra step of paying for LinkedIn’s premium services have become big advocates of the platform. Their success building referral networks and sourcing prospects cannot be ignored, McKenna and Taber explain.  

“A significant number of advisers have really embraced InMail messaging via LinkedIn,” McKenna says. “With so many people experiencing some degree of email clutter or even email fatigue, advisers see this direct communication pathway as being highly effective in terms of reaching clients and prospects. They can also use Facebook messenger for this purposes, but that is not as common or seemingly as effective.”

Putnam’s data shows there is a real payoff for advisers who embrace direct social media communications.

“I have spoken with one adviser who said he recently won five new clients based on a Facebook referral and his subsequent outreach,” McKenna says. “It’s remarkable to see the success. We can see that 94% of advisers using direct messaging say they have won new clients this way.”

Atlanta Retirement Partners, a financial services firm based in Atlanta and the 2019 PLANSPONSOR Plan Adviser Small Team of the Year, heavily relies on LinkedIn for research and prospecting, says David Griffin, founder of the firm. Whether searching for background details on prospective clients, deciphering who has the real authority when it comes to potential benefits decisions, or figuring out who may have a working relationship with a client or center of influence, LinkedIn is very powerful, he says.  

“We do almost everything through LinkedIn, it’s the easiest way to target those people who are decisionmakers for institutional type plans,” Griffin adds. “We find that this preparation strengthens your relationship with your prospects and customers. You can talk about things that are important to them or their business.”

LinkedIn InMail has proven to be particularly effective for his firm, Griffin says.

“If you look at your LinkedIn and you see you have a message, you feel fairly compelled to respond to it,” he suggests.  

Taber and McKenna speculate that LinkedIn is the preferred platform for a number of reasons, some more obvious than others. Particularly important has been LinkedIn’s focus on helping people build networks that are defined in terms of “layers” or “levels” of connection.

“To their credit, LinkedIn provides a robust and evolving set of tools and services, including Sales Navigator, which is very popular among successful and growing advisers,” McKenna says. “You can use their paid services to really look at all your 2nd and 3rd level connections and strategically build out a network of potential clients, referrals, prospects, etc.”

The Putnam data underscores all these points. The survey shows nearly half of advisers (48%) who initiated new relationships during the pandemic reported using the platform’s InMail feature to contact out-of-network prospects. At the same time, 36% say they have hosted or participated in a LinkedIn Live session. Additionally, 80% of advisers who initiated new relationships since late February used one of LinkedIn’s premium memberships.

Taber says the other major trend identified in the post-pandemic survey update is that nearly 90% of advisers now report that support from their home offices ranges into the realm of social media.

“Importantly, advisers pointed toward specific areas where their home offices have laid the groundwork for their social media efforts,” Taber explains, including providing timely content to post (55% of advisers); expanding the number of social networks approved for business use (48%); providing access to support resources (45%); and offering training from partner firms (40%), home offices (37%) and third parties (27%).

Practice Management October 6, 2020

Pooled Employer Plans and 3(38) Fiduciary Advisers

One provider getting ready to launch a SECURE Act-enabled pooled employer plan on January 1 says he is already in conversation with advisers about combining 3(38) fiduciary oversight with PEP recordkeeping and administration.
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Though the Setting Every Community Up for Retirement Enhancement (SECURE) Act includes many popular provisions, among the most favored is its authorization of a new type of retirement plan known as a pooled employer plan, or “PEP” for short.

As defined by the SECURE Act, PEPs are somewhat similar to already fairly well known multiple employer plans (MEPs), with some key differences. Among these is the fact that a PEP must be administered by an approved entity called a “pooled plan provider,” or “PPP.” The SECURE Act allows pooled plan providers to start operating PEPs beginning January 1, 2021, but it also requires pooled plan providers to register with the Secretary of Labor and the Secretary of the Treasury before they begin operations.

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Retirement plan industry analysts and attorneys are expecting that entities interested in becoming pooled plan providers will include banks, insurance companies, broker/dealers (B/Ds) and similar financial services firms, including pension recordkeepers and third-party administrators (TPAs). These entities, with their complex financial arrangements with employee benefit plans, have in the past needed and been given exemptive relief by the Department of Labor (DOL), through its statutory authority under the Employee Retirement Income Security Act (ERISA), in order to avoid prohibited transactions and conflicts of interest. In August, the DOL published a Notice of Proposed Rulemaking (NPRM) that seeks to implement various registration requirements for emerging pooled plan providers, while also inquiring about the need for the creation of a new exemption.

Reflecting on all these developments, Tim Werner, president at BlueStar Retirement Services, says it is an exciting time to be in the recordkeeping and TPA business. He describes his firm as a pure-play recordkeeping and TPA shop, meaning it does not engage in other, related lines of business, such as providing financial advice or selling mutual funds.

Werner tells PLANADVISER that BlueStar began working with MEPs even before he came in to lead the company back in 2004. He says having experience with MEPs, along with his firm’s longstanding focus on creating in-house recordkeeping and TPA solutions that do not rely greatly on third-party technology, prepared the firm to “step up and be one of the very first pooled plan providers.”

“Along with a select number of other peers, we are going to be ready with a PEP solution on January 1,” Werner says. “Exactly what that first day or month looks like in terms of plan sponsor demand remains to be seen. I personally do not expect a tidal wave of interest on day one.”

Data about the existing MEP market collected as part of the 2020 PLANADVISER Recordkeeper Services Survey offers some context. Though, as stated, MEPs and PEPs have key differences, interest in MEPs is a reasonable proxy for forecasting the kind of early interest providers could see for PEPs. 

The PLANADVISER data found responding recordkeepers (who collectively work with the vast majority of U.S. retirement plans), currently operate more than 3,600 MEPs, run on behalf of nearly 30,000 employers and 1.4 million participants. Looking at the asset sizes of the individual adopting employers is an eye-opening exercise, showing that interest seems strongest in the sub-$1 million and sub-$5 million categories. But there are quite a few employers in all asset ranges that are in these MEPs, and, in fact, the data shows something of a barbell distribution, with several thousand large employers participating in MEPs today.

Based on his conversations out in the marketplace, Werner says the idea that PEPs could be cheaper than traditional single-employer retirement plans is appealing to many small plan sponsors. But, at least in his experience, he says the lion’s share of demand for PEPs is going to come from plan sponsors that simply want to offload the responsibility of running and monitoring the retirement plan.

“It’s interesting, because in that sense I actually think mid-sized employers may drive some of the early interest,” Werner says. “Much of the conversation has focused on the ability of small businesses to come together in PEPs, and I expect that will happen. However, one adviser I spoke with just last week told me they have five or more plan sponsors in the $50 million to $100 million range that are keenly interested in being in a PEP—all because of the potential to offshore some of the fiduciary responsibility and the daily processing involved in running a plan. For these particular employers, the PEP discussion is not entirely or even mainly about cost.”

Werner says plan sponsors are not the only group of industry stakeholders that could see a big impact from the expansion of MEPs and PEPs.

“We continue to have a number of discussions with registered investment advisers [RIAs] wherein they are trying to figure out how they fit into a marketplace where PEPs become much more popular,” Werner observes. “Some are asking us whether they should set up their own PPP, or perhaps whether they can work with us to be the PPP, or whether this is a role for a different third party. It’s very dynamic, but many of the people I speak with are also concerned and interested in this idea of whether they can get the necessary prohibited transaction exemption that they feel they would need to serve as the 3(38) fiduciary investment adviser on a PEP.”

Werner says he expects many traditional retirement plan advisers will be reticent to step into this space until regulators issue clarifications.

“As the market develops, I expect that, in some cases, we will be the recordkeeper and TPA for another provider’s PEP or even an adviser’s PEP, while in other cases we will be the PPP and handle everything,” Werner speculates. “Overall, we are excited about the concept and what it means for getting more people covered in retirement plans.”

Ilene Ferenczy, managing partner of Ferenczy Benefits Law Center, agrees broadly with Werner in arguing that the main reason why employers may be interested in PEPs will not necessarily be the appeal of lower costs, but the advantage of offloading the fiduciary and administrative responsibility and liability to another entity.

“MEPs and PEPs are also appealing for small companies just starting out with their 401(k) plan that don’t have a lot of assets and negotiating abilities,” Ferenczy says. “They give them access to service providers they normally wouldn’t have access to.”

As Daniel Milan, financial adviser and managing partner of Cornerstone Financial, notes, according to the DOL’s own estimates, as of March 2018, approximately 85% of businesses with 100 or more employees offered a retirement plan—whereas only 53% of businesses with fewer than 100 employees did so.

“Some of the reasons smaller businesses choose not to offer a retirement plan include regulatory complexity, cost and exposure to potential fiduciary liabilities,” Milan says.

However, MEPs have largely failed to gain much traction in this space because they require companies that join to have a commonality, or a nexus, Ferenczy says. PEPs do away with this requirement and, therefore, could be more popular. MEPs have also been subject to the “one bad apple” rule, whereby the entire group can be disqualified if just one of the companies fails to comply with the rules—another hurdle that is addressed by PEPs.

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