How to Win in the Micro and Small Markets

It’s a surprising statistic, says Davis, Guardian Retirement’s national sales manager, but just under half of plan sponsors do not think they are getting good value out of their plan. “They’re out there, and they’re looking for help,” Davis tells PLANADVISER.

In the micro plan market (those with under $5 million in assets and fewer than 100 participants), plan sponsors face a number of common challenges in running a plan. For that reason, the market represents an opportunity for advisers to deliver value and win more business.

Small-plan sponsors rarely have the luxury of a separate committee. Instead of a treasurer, HR person, and chief financial officer making decisions as a team, it’s just one person, Davis says. The adviser can provide a great deal of value helping the employer sort through the tasks that a committee would handle, such as figuring out how to leverage different service providers and pitching in with employee education.

The adviser can help the plan sponsor determine if fiduciary support is needed, for instance whether the demographics of the company point to a combination of 3(21) and 3(38) services, or just 3(21) service. Most smaller advisers do not want to provide both these services, because it is generally not efficient for a smaller practice. The adviser who is a good, active listener can act as a sounding board to the plan sponsor the way a committee does, Davis says.

In the micro plan market, there has been a slow uptick in the use of auto features, Davis says, such as auto enrollment and auto contribution increases. “Small-plan sponsors are likelier to want a do-it-for-me approach, which can work well with auto features,” he says.

However, Davis points out, plan sponsors are still challenged by the census information they need to supply for auto features to work, including data such as participant dates of birth, hours worked, and salary for the time period, which can account for some slowness in adopting these features.

Help for the Plan Sponsor

Communication and participant education are two areas for an adviser to consider when looking to help the plan sponsor and, at the same time, improve his book of business, Davis says. One key, of course, is to achieve these goals without over-committing.

“The best way for an adviser to tackle improving a small plan is to work with a competent relationship manager who can design an education policy statement and help support it,” Davis says.

“Education policy statements are becoming more common,” Davis says. The adviser can help the plan sponsor craft the statement, but will likely need support from a relationship manager, a TPA and the provider to help staff meetings and do it on a topic they’re comfortable with.

Advisers should make sure the plan sponsor sits down for an annual plan review, Davis says. The review should be easy to read, and the meeting can take place with just plan sponsor and adviser, or the adviser can bring along the relationship manager. The annual review is a way to solidify the relationship, Davis says, while identifying any pain points in the plan.

Are certain demographics investing too aggressively or too conservatively? Could participation be improved? Something is going to come up in the plan review that needs to be worked on, Davis says. 

Choosing Partners

Advisers should ask themselves who they work with best. Questions to consider include the types of companies an adviser is familiar with, and what sort of influence group he has developed. The goal is to combine the expertise of a financial adviser with the understanding of a specific type of business the adviser is already comfortable with. For instance, Davis cites an adviser who frequently mentioned construction companies and commercial real estate as companies he was especially familiar with. These became areas of expertise for the adviser, as well as a source of referrals from attending regional conferences.

It is key to partner with a local TPA. “I can’t emphasize this enough,” Davis says. “This can help you market yourself and be a good third wheel to the services you’re providing.

“Look through the toolbox,” Davis says. “Do you have a good relationship with a provider in the marketplace? Are you partnering with the right person? Evaluate everything you are going to bring to this small segment.”

Advisers should assess the structure of their practice. Solo advisers need to be able to turn to various partners or reach out to a provider that can offer support service. Advisers who work as a team will naturally approach the plan sponsor differently.

Either approach is acceptable, Davis emphasizes. “It’s fine being on one end, or the other, solo or team. But do not stay in the middle,” he says. Advisers must know who they are, and after that no apologies are needed. The solo adviser should let the plan sponsor know about the support members he works with, the third-party administrator and other professionals.

Advisers who work as part of a team should be careful of the dangerous middle ground. “They don’t differentiate, or they over-commit,” Davis says. They find they don’t have time to service the plan the way they sold it, and promised too much in the way of education meetings, for example.

Tools can be helpful, Davis says. While often created for the participant and the plan sponsor to use, they are delivered by the adviser to answer questions about fee disclosure or other plan issues.

A short to-do list for advisers, Davis says, would be to assess optimal partner arrangements, evaluate the practice structure (solo or team) and gather the best tools and partners to support the plan sponsor.