PANC 2012: Micro Matters

The market itself is not necessarily growing, but the opportunity within it is because plan sponsors and participants need help understanding 408(b)(2) fee disclosure, Jim Sampson, managing principal at Cornerstone Retirement Advisors, told attendees of the 2012 PLANADVISER National Conference.

“[Fee disclosure] has opened a lot of eyes and raised a lot of questions,” he said, adding that it provides a big opportunity for advisers in the micro market to benchmark prospective clients’ plans. His company has added more than 20 plans this year, many from benchmarking.

Timothy Rice, president of Lakeside Wealth Management Group, agreed that benchmarking is a great prospecting tool. He suggests calling prospective clients and asking if they have reviewed their 408(b)(2) disclosures. If they have not, you can offer to review the statement with them.

“I’ve been totally blown away by some of the stuff I’ve seen in [fee disclosure statements],” said Rice.

Rice said he reminds potential clients that the “cost of being wrong” is too great, and without benchmarking the client cannot know whether they are wrong about the reasonableness of their fees.

Basic benchmarking is almost a requirement in today’s industry in order for plan fiduciaries to determine if fees are reasonable, Sampson said.

Hands-On Education  

In addition to explaining and benchmarking fees, advisers in the micro market can bring value to clients through education.

Because the small-plan market is relationship-driven, Sampson said he thinks clients expect hands-on education. In the micro market, he said it is easier to make a difference for participants through education.  “That’s what makes me feel like it’s all worthwhile,” he added.

Rice said his education meetings are successful because they focus on guiding participants on things such as the appropriate deferral rate.

Although data may suggest that participant education is ineffective, Sampson would argue that it is simply because educators have not been effective. Advisers cannot be the “guys in suits with PowerPoint presentations about investments,” he joked.

In his meetings, Sampson said he spends 90% to 95% of the time focusing on the impact of savings and the remainder on investments, which he said participants do not care about. “They want you to tell them which [funds] to pick,” he added

Other Tips for Micro-Market Advisers 

Sampson and Rice offered additional suggestions for advisers either trying to break into the micro market or implement better business practices. Here are a few of their tips:

• Delegate. Enlist a junior adviser to create quarterly reviews so that you have more time to prospect new business, Rice said.
• Price yourself fairly. The cheapest is not necessarily the best, Rice stressed, adding that if you can demonstrate your process and show that your participant outcomes are going to be better in the long run, then you have pricing power.
• Use repeatable systems. Use a tool suite to make processes more seamless, Sampson suggests. In addition, streamline investment lineups and policies. Rice estimates that 80% or more of his plans have identical fund lineups. Sampson said he uses the same investment policy criteria for virtually all clients.