In the defined contribution (DC) market, sales and value-added programs are more closely linked than in any other segment of asset management. But there is little research or documentation that really scrutinizes these programs or identifies industry best practices.

“Changing the DC Advisor Value-Add Game: Maximizing Your Investment in DC Advisor Value-Added Programs,” an upcoming survey report by Chatham Partners, takes a deep dive into these tools and programs, the firms that offer them, and what users think of their quality and usefulness.

“We wanted to put together something unique around the issue of value-add,” says Bruce Harrington, a broker/dealer practitioner and a co-author of the report. Value-added programs have accrued a lot of resources, he tells PLANADVISER, and people spend a lot of attention on them.

Compiling input from hundreds of financial advisers, as well as retirement heads at broker/dealers and industry executives at DCIO and recordkeeping firms, the research gives a really interesting perspective, he says. Harrington describes himself as more of an industry person, which he says made the collaboration interesting. (Joshua Dietch, managing director of Chatham Partners, brought his research background to the project.)

Chatham wanted to create a metric that boils everything down to a number to produce an index, Dietch says: “We thought, ‘What are the things that you [the provider] would view as the desired outcomes of offering the value-added program?’”

Level of satisfaction in five areas of tools and programs—practice management, sales and lead generation, plan sponsor engagement, plan participant engagement and intellectual capital or thought leadership—were ranked for one part of the score.

Value-added tools and programs need to create awareness as well as differentiation for a provider, and these two areas are also scored. Adviser willingness to reward a provider with additional business as a result of superior value-added tools and programs was also scored, as well as how frequently a provider is cited as offering the best value-added programs.

The index includes a net promoter score, which represents the client’s likelihood of recommending the recordkeeper or DCIO firm they named as providing the overall best value-added tools and programs.

Surveying the Programs

Once these metrics were developed, the survey was simple. Dietch said it had just three basic questions for each category: Do these programs help win business for our firm? Do they differentiate us? Do they lead to more incremental sales? “We asked these questions of all the advisers about their preferred provider, investment firm or a recordkeeper,” Dietch says. Last, they asked about the frequency of mentions for a firm. “Frequency is indicative of popularity but also of quality,” he says. “It means preferred providers who are doing something right.”

Value-add programs vary, and one size does not fit all, the report found. Often the appeal speaks to an adviser, channel or target market segment. True specialist DC advisers are the likeliest to value and use intellectual capital pieces, and wirehouse advisers are more apt to use practice management tools.

“People often take issue with thought leadership,” Dietch says. “It’s just another way to ‘kill a forest’ using up all that paper for printing research. But at the end of the day, the most voracious consumers of thought leadership are the advisers who earn the bulk of their income from retirement plans,” he says. “They’re always looking for ideas that either benefit their practice or benefit their clients, and they can take that intellectual capital and make it their own.”

Another key takeaway is that value-added programs open doors or break ties. “It’s helpful to know who the adviser’s clients are as well,” Dietch says, “and what issues are really important to them. If I am an adviser and I’m selling to small-business people, I might not walk in the door talking about my sophisticated investment selection process.”

Data in the report shows somewhat low marks for programs and tools that specialize in sales and lead generation (4.61 and 3.66 out of a possible 7). Nearly half of advisers surveyed (47%) strongly agreed that value-added programs in sales resulted in provider recommendations, and just 14% strongly agreed that value-added programs in lead generation resulted in provider recommendations.

Target Audience

Awareness, differentiation and driving sales are the three key points, Dietch says, but the conception versus the execution of the programs seems to have a bit of a gap. “In some ways, you have to really think about who you offer to, what you offer them, and how you deliver.”

When value-added programs are developed, Dietch notes, perhaps some disconnect is inevitable. “Internally, you have marketing, products, sales—all these constituencies,” he says. “Externally, there is the adviser, the broker/dealer and advisory firms. What kind of synthesis of insight are you doing to capture all those perspectives?”

Measurement is another key, Dietch says. Some firms do not measure anything and say it’s too difficult, he says, but his firm tracks at the team level. Many factors can be measured. “If I route advisers through our home office we flag those advisers so we can baseline their activity and measure output,” he says. “What level of activity comes from new content? Does certain activity produce a spike?”

The ultimate goal of any DCIO firm and recordkeeper is attaining the status of preferred provider, and being a DC adviser’s preferred provider and offering top-notch value-added programs are strongly correlated, the report found. Chatham measured the percentage of overlap when ranking the strengths of value-added programs and in designating a provider as preferred.

Dietch says the strength of that overlap was surprising. “It was the first time anyone has validated the thesis,” he says. “Maybe we were just patting ourselves on the back; I don’t know,” he says. “People have always said value-add is a means to open doors or break ties, and we wanted to test that thesis, and largely it is true.”

However, the simple offering of a value-add may not be enough, Harrington says. “Just because you do it, doesn’t mean you do it well,” he points out.

“Changing the DC Advisor Value-Add Game: Maximizing Your Investment in DC Advisor Value-Added Programs” will soon be available through Chatham Partners’ website.