PANC 2014: Rethinking the Profitability of Your Practice

Surprisingly, only one-third of retirement plan advisers know their gross and net margins, said Blake Thibault, senior vice president and adviser with Heffernan Financial Services.

Blake was included as a moderator on the “Rethinking the Profitability of Your Practice” panel at the 2014 PLANADVISER National Conference Tuesday. Another firm represented on the panel, Blue Prairie Group, tackles this challenge by assigning various service tiers to its clients, “with tier one clients, for instance, being assigned a senior consultant and customer relationship manager (CRM),” said Ty Parrish, senior ERISA [Employee Retirement Income Security Act] consultant and managing partner at Blue Prairie. “See how you can streamline your practice through automation and what clients value the most. We also ask clients where we are inefficient.”

Likewise, CUNA Mutual Retirement Solutions instructs retirement plan advisers to strive to assign the appropriate (and profitable) manpower to each client because, in reality, many advisers accept clients with assets lower than their standards, said Randy Fuss, practice management consultant at CUNA. “I ask retirement plan advisers, ‘What is your minimum plan size?’ They might tell me $5 million. Then I ask, ‘How big was the last plan you brought on?’ and they might well say $1.5 million. Then I ask, ‘How big was the plan before that?’ And the answer inevitably is $600,000. The point is, don’t just have one line in the sand. Figure out your billable hourly rate, what you actually make an hour.”

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CUNA recommends retirement plan advisers charge between $250 and $300 an hour and has a report titled “Rethinking Your Profitability” to help advisers raise their revenues. It lays out 20 activities to profitably support a retirement plan.

“Profitability varies depending on the prism through which you look at it, whether you are a wirehouse or independent registered investment adviser (RIA),” said Anders Smith, senior vice president at Nuveen Investments, which offers the 401(k)ollege to guide retirement plan advisers on building a thriving business. “It also depends on how focused you are on the retirement planning business. If you offer wealth management as well, your retirement planning business might not need to be as profitable.”

Nuveen advocates four central metrics for financial advisers to measure profitability: financials, productivity, client retention and satisfaction and onboarding new clients to raise assets, Smith said. Study these measures throughout the year and then put appropriate goals in place at year-end to make improvements, Smith said. Nuveen offers a web-based tool called the Plan Profit (k)alculator that assists advisers in refining their service model, cost structure and prospecting efforts; determine if the plan is providing the financial return they seek; and identify the variables that impact plan profitability.

Before signing on a new client, it is also imperative to ascertain how time consuming the sponsor’s plan will be, Parrish said. “Is it local or not?” he noted. “Is it a public company with employer stock and inherent risk? How complex is the plan? What service level will it require? How have you priced similar plans?”

To that point, Smith added: “A lot of advisers don’t take into account how much time it will take to support a plan. Time is our most valuable resource. That’s where you can drive more revenue and business, by delegating our outsourcing. That makes a big difference. Benchmark your services to specific clients.” To this direct point, Nuveen has created a retirement plan adviser time allocation tool.

Nuveen Investments recently asked 50 retirement plan advisers whether they track their time, Fuss said. Only one said yes. “Sixty to seventy percent of your time should be spent on billable hours,” he said. Retirement plan advisers, in particular, tend to want to micromanage the plans they oversee, but they should delegate and outsource, Fuss aid.

Then there is the question of varying levels of service needed to support a plan as its asset size and objectives change over time and what are the appropriate fees an adviser should charge. New clients may have labor-intensive problems with their plan that can be ironed out after several months, Parrish said. “After that, it’s just ongoing maintenance,” he said. For these clients, Blue Prairie charges them on a project basis.

An adviser also may not be able to anticipate the level of service a new client will require, and could find themselves strapped with a fee that is too low, speakers said. In these cases, it makes sense to sign a two- or three-year contract with the plan sponsor client and then to revisit the fees after that period, to see whether they should be either appropriately raised or lowered, Fuss said. Don’t ever forget to remind your clients of all of the actionable, real improvements you have made for their plan and their participants, Thibault added. That justifies your service and your fees to sponsors, he said.

As to the question of knowing when it’s necessary to add new staff, in Blue Prairie’s experience, client relationship managers can successfully handle 10 to 15 meetings a month, Parrish said. Anything above that signals that it’s time to hire a new manager. In CUNA’s experience, a retirement plan adviser can successfully handle no more than 20 plans, Fuss said. Another very important way to look at staffing levels is to conduct client surveys, Smith said. “When client satisfaction goes down, that’s when you need to hire someone to deliver on the value proposition you’ve promised,” he said.

When hiring an additional adviser, it’s critical for a practice leader to assess his own strength’s and seek out an individual to complement those talents, Fuss said. CUNA has identified four core areas that retirement plan advisers gravitate to: sales, CRM, educating participants and technology. “Think about what you are passionate about and hire your polar opposite,” he said.

PANC 2014: Participant Advice

The value of delivering advice to participants is not in question, but participants remain fuzzy on what the advice means, and the difference between advice and education, said panelists at PANC 2014 in Orlando, Florida.

The biggest fear for just over half of Baby Boomers (54%) is that they won’t be able to retire when they want to, according to research cited by Phyllis Klein, senior director of the consulting research group of CAPTRUST Financial Advisors, who moderated the panel. More than half (57%) are trying to find an easier way to choose investments, she said, and 61% want personalized advice. People who do get advice save an average of $1,100 more per year in their retirement plans than those who do not get advice.

“There is a desire for advice and, at same time, it is working for them,” Klein said. “Most people (88%) who received advice were properly diversified for their risk tolerance. So you are getting them properly diversified and you are getting them to save more — it’s probably going to work.”

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The key differentiator for investment advice (and not education) is making specific recommendations on specific investments, according to Michael Webb, vice president,  Commack Retirement Group. “Education is more general,” Webb said, but not everyone—especially participants—is clear on the difference, he said.

Some participants ask the provider to tell them what to do, and ask for a do-it-for-me approach from the investment advice provider — a concrete example of advice, Webb said, while education answers the participant who says, “Give me the tools to make the decisions so I can make the right investments.”

Can the average participant distinguish the two? In most cases, Webb said, “No chance. Most people getting education think they are getting advice.” This confusion is part of the challenge of delivering advice. “It’s the participant perception,” he said. ”If they only value advice and they’re getting what they think is advice, but they are getting education, that’s the problem with investment education versus investment advice.”  

Plan sponsors may feel there is a compelling reason that makes them want to give advice to their participants, noted John Shubert, vice president and senior retirement plan consultant, CBIZ Retirement Plans. “If we’re taking plan level advice to a plan sponsor, we sit in the committee meeting with them and we have specific conversations and drill down deeply,” he said. “One could argue that participants are excluded from that information. It’s complicated and it may not be in their wheelhouse but you could make an argument that they’re excluded. So advice is another mechanism to bring them information.”

After all, Shubert said, plan sponsors have a duty to inform participants about the things that can impact their situation. He emphasized that he does not advocate involving participants in the investment committee process, but said that specific investment advice is another mechanism for giving participants information. “It could be considered a good fiduciary best practice reason, to give them information they are not privy to,” he said.

A lot of education would be called advice by some people but not by the Department of Labor (DOL), Webb said, adding that some of the guidance has some blurred lines. “If you are not specific, mentioning choosing Fund X, Fund Y, Fund Z, it is not advice,” he said.

Webb pointed out, in response to a question about tools and resources that advisers employ that leverage technology in advice delivery, that advisers have complained about the lack of any great solutions but some do exist, or can be adapted. Tools that are designed to track other purposes, such as sales or products, can be adapted to track past conversations with participants, he said. 

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