PANC 2014: Benchmarking Your Services

Advisers have been last to update the factors they need to measure, said Dan Peluse, director of corporate plan services at Wintrust Wealth Management. “In the age of fee compression, it's really important to focus on the measurable results you set with your clients,” he said. These results run an adviser’s business, and tracking and examining can help the adviser to understand the revenue required to manage a client.

“As we've evolved from investment adviser to plan adviser, goals such as average deferral rates or readiness that have been set with a client are more important to review, measure and keep track of,” Peluse said. “We used to just set a couple of investment reviews. Now we are in a position to validate the fees we're charging because we've been measuring the success for our clients. It’s really important to show that value to a client.”

“If you're looking at your practice as a business and trying to put together a strategy for growth, it's important to put a stake in the ground and get a feel for the health of your practice,” said Paul Temple, vice president of retirement sales at OppenheimerFunds.

Advisers should be able to compare their firms to those comparable in number of plans, or number of participants, or type of industry, to name a few categorizations, Temple explained. "The more apples to apples, the better," Temple said. "Determine your strengths and what you are doing very well, and what areas are a weakness. It is important to share the information with partners and staff.” Benchmarking can generate a lot of information, and even a few surprises. Get everyone on the same page and set incremental goals, he advised.

The data points from benchmarking a plan are useful metrics to show prospective clients, Peluse said. Metrics can be a challenge, according to Temple. “I never thought I’d say this, but I’m grateful for 408(b)2 because it served as a proxy for us to get better data on plan-level information, plan design and what our advisers were contemplating,” he said. 

Data aggregators are now getting into the benchmarking business, which is fine, Temple said. “An average or basic benchmarking report is appropriate for a plan without a lot of complexities, but for our retirement plan specialists who manage larger plans we are moving toward a more dynamic environment,” he said. “At the practice level, they can make sure they are retaining assets and fostering new business opportunities with benchmarking.”

But at the plan and participant level, the intrinsic value of a specialist—all the work they do and the cost involved as co-fiduciaries, such as the meetings they conduct and the strategies they come up with for participants—is not always captured in a benchmarking report. For this reason, OppenheimerFunds turns to tools and resources from third parties.

Metrics that can express participant outcomes are key, Peluse said, because data on retirement readiness is important. “I think income replacement rate tools are great, but they are very scary for participants because they see a huge gap all the time,” he said. “It can paralyze participants. We need to sit down with them to make sure that number looks and feels more realistic.” One possibility is to look for assets—such as an IRA, pension plan or Social Security—that can be factored in.

Ted Madden, senior vice president, Fidelity Investments agreed that this number needs to be made more achievable. “It should be something they can get to,” Madden said. “There is no doubt that it is useful, but it could be put into more bite size pieces so they can digest it.”

Other metrics can be savings rate by age or by group engagement level of participation, Madden suggested. How many times have participants engaged with the plan adviser or plan sponsor for help? These figures can be compared to similar industries, similar plan size, even to other people in the same geographic region.

Peluse said that Wintrust conducts annual reviews that include measurable metrics more frequently, and he could even see reviews conducted each quarter.

“One of the important services advisers provide to their plan sponsor clients is helping them select service providers,” said Jeb Graham, partner at CapTrust Advisors, who moderated the panel. “Most have benchmarked service providers, with the goal of finding the best fit, and now fee benchmarking has become even more critical over the last few years.” Requests for information (RFIs) and requests for proposal (RFPs) are common ways to establish the reasonableness of fees, Graham said. 

According to Temple, one adviser at OppenheimerFunds put together, one adviser said he tells plan sponsors to put the plan out to an RFP every three years. “If you have that level of confidence to do that,” Temple said, you are helping that plan sponsor and putting him a strong position to show that the plan has a documentable process for the reasonableness of fees.

Graham suggested that advisers look to personalize benchmarking and RFPs with case histories of plans with specific issues. The steps an adviser took to address issues and the results achieved can make it easier for a plan sponsor to understand the difference an adviser can make.

Peluse said he is a fan of case histories. “We worked on developing client experience examples,” he said, “how long they've been with us, and the measurable results.” This gives plan sponsors some information about the success they have had with clients. Part of the process is regularly sitting down with individual participants and taking notes to accumulate specific plan data to bring back to plan sponsors any individual success a participant achieves, for example.

Peluse said that plan sponsors love his firm's use of meeting minutes, among other documents, as supporting evidence to show plan sponsors the progress in the plan, and the results they have gotten. "It's not a perfect science, but we continue to enhance the reporting," he said.

Full-blown benchmarking is not always necessary, said Paul Mahan, vice president, retirement consulting services of Commonwealth Financial Network. Sometimes, shining a light on specific components is effective and can avoid what he calls the huge 90-page formal process every three years. “I like the idea of developing an alert system based on input from the adviser and the recordkeeper partner, who lay out 10 or 12 critical goals,” he said. “Once those are hit, the adviser and plan sponsor can talk about new goals. It’s more dynamic, and can happen on a real-time, regular basis.”

It all comes back to fees, Peluse noted. Have an open and honest conversation with the client about why your fee is what it is, and what you provide for it. Clients are more comfortable with that.