PANC 2009: How to Market to 403(b) Plans

However, the 403(b) marketplace is very different from the 401(k) marketplace, and advisers need to know their stuff before diving into this new territory, a panel of experts at the PLANADVISER National Conference in Orlando, Florida, pointed out. David Hinderstein, president of Strategic Retirement Group, National Retirement Partners (NRP) member firm, who has advised organizations in the non-profit retirement plan space for 20 years, said advisers first need to know the history of the marketplace: depending on the market segment, many 403(b) plans have had minimal or no sponsor involvement and a multitude of vendors or investment options.

Hinderstein pointed out that an adviser’s value proposition should be well defined because non-profits guard their money, typically stipulating its use it for the “greater good,” such as educational programs and medical training or development, so advisers must be able to articulate why they are worthwhile addition to the budget.

An adviser absolutely has to show expertise when selling themselves to a potential 403(b) client, said Steven Dimitriou, Managing Partner, Mayflower Advisers. Advisers should show they understand the unique needs of 403(b) plans and show sympathy for the sponsors’ situation in complying with new regulations.

Jon Prescott, chief marketing officer at CPI Qualified Plan Consultants, Inc., a recordkeeper that has opened common remitter and compliance services to K-12 and higher education plan sponsors, noted that many entities that sponsor 403(b) plans lack the staff, technology, or other resources to comply with new regulations and see them as an administrative burden, so advisers should show up willing to help.

Most sponsors fear governance, Dimitriou added.  "Cost and efficiency are next year's problem. If you walk in talking about investments, you may lose them," he said. However, Hinderstein noted that it is easy to point out to prospective clients that an adviser can offer different investments for the plan and ways to lower fees.

To gain the expertise needed to enter the 403(b) market, the panelists suggested studying the regulations and referring to resources such as PLANSPONSOR's (b)lines newsletter, and the 403bwise, SPARK, and 401khelpcenter Web sites. Hinderstein added that providers are also a good source of information. While all panelists said it is a good idea to partner with a provider, Hinderstein pointed out that if an adviser's provider partner has someone in on what is going on in Washington, D.C., it is an added selling point to prospective clients.

Prescott also suggests advisers research state laws, not only for regulations on the plans and investments, but to be prepared for challenges. Some states have a law saying any vendor can enter a school and try to sell a product, increasing competition.

Advisers should also understand that there is a bureaucracy in most governments and non-profits which slows the decision-making process, but this could be beneficial, as it also may weed out the not-so-serious players, Hinderstein noted. Prescott added that another challenge may come from unions, which may be loyal to particular vendors and are another step in the decision-making hierarchy.

Leads and Fees

Advisers may have the opportunity to gain 403(b) clients through business they already have. Hinderstein pointed out that sponsors of 401(a) plans also often sponsor a 403(b) plan.  Advisers to 401(a) plans should ask about the opportunity.

An attendee from the Principal Financial Group added that if an adviser is advising a foundation or endowment, there also is usually a 403(b) plan sponsored by that client. An existing client may also be a referral for new business, as individuals are often associated with different non-profit organizations, Dimitriou said. Otherwise, advisers can look to associations – medical or education – for new business.  Hinderstein suggests advisers offer to speak at association meetings about financial or retirement planning.

Prescott added that advisers can gain assets by looking for orphaned accounts in 403(b) plans. He suggested asking a common remitter provider for a list of orphaned accounts for which an adviser may ask to change the broker of record.

An adviser's pay will depend on the client. Hinderstein said that for smaller entity and K-12 plans, commissions and fees based on the amount of time spent or work done make sense, while for large clients, advisers should accept a fee for service or registered investment adviser (RIA) or flat fee model.

Although advising a 403(b) plan may require a lot of work in the beginning, advisers who start now will be well-known and trusted when the market gets easier, Prescott said. The market is moving to a model that functionally will act like a 401(k) and it shouldn't take long for advisers to get up to speed.