Compliance September 29, 2015

PANC 2015: Adding Wealth Management to Your Practice

Executives provide practical and legal tips for adding wealth management to your practice.
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Asked whether advisers still look to add wealth management and rollover business to their practice, in light of the proposed fiduciary rule, David Kaleda, principal at Groom Law Group, said, “For plan advisers moving into wealth management, that’s always been a tricky area. Under the proposal, it will become even trickier because it broadens the definition of those who are fiduciaries and includes rollovers.” Kaleda was speaking at the 2015 PLANADVISER National Conference in Orlando, Florida, on the panel “Practical and Legal Tips for Adding Wealth Management and Rollover Solutions to Your Practice.”

“Under current law, there are exemptions that do allow you to be paid, but they aren’t suited for rollovers,” Kaleda said. The new proposal allows for a best interest contract exemption (BIC), but as it is now structured, “almost no one can comply with it. This will certainly change in the next six months to a year.”

As for cross-selling to participants, “Everyone is looking for a way to monetize their relationship with participants through an IRA [individual retirement account], and, due to the sheer number of Baby Boomers retiring over the coming years, it is certainly going to happen,” said George Revoir, senior vice president, distribution, at John Hancock Financial Services. “You can make it an easier conversation, depending on how you look at it. The majority of John Hancock’s retirement plans in the smaller end of the market allow for lump-sum distributions, so it is not hard to have a conversation about an income option in an IRA rollover.”

The other option is for an adviser to suggest including lifetime income options in a plan to keep retired participants invested, Kaleda said.

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In the years ahead, this is an option that advisers will need to consider, particularly for large plans, Revoir observed.

NEXT: The appeal of wealth management

“People in the plan with high balances will be attractive to you,” Kaleda said. “Lower and middle balances could also be attractive if you have some scale. But you need to remember that managing a 401(k) is very different than managing an IRA. These are taxable accounts and are subject to the prohibitive transaction rule with regard to compensation. If you are a fiduciary to the plan, you are precluded from increasing your compensation, so most folks very carefully present their retirement plan practice and their wealth management practices as two distinct services.”

It is also important for advisers that are affiliated with a broker/dealer (B/D) to “consider the compensation to the B/D that is a custodian of the IRA. Even if you aren’t making more money, if the B/D is, it’s a prohibitive transaction,” Revoir said.

At all times, advisers are expected to consider participants’ best interests, Kaleda said. “Other than the key question about compensation, if I am a fiduciary to the plan participants and to the plan, am I conflicted?” he said. “Take the case of a small business where the owner has sizable assets and wants the advisers to place certain funds in the plan. The adviser is obligated to have all plan participants’ best interest in mind.”

NEXT: How to conduct rollovers

Rollovers will be critical for advisers looking to build out a wealth management practice, Kaleda said. “If you are a fiduciary at the plan level and recommend a rollover, you have to act in the participant’s best interest and make sure you aren’t getting additional compensation. If you aren’t a fiduciary, you can recommend a rollover, but if you are affiliated with a B/D, remember, FINRA will scrutinize you,” he said.

As for your management of investment decisions in the IRA, those currently are not subject to the Employee Retirement Income Security Act (ERISA), but the new rules will make them subject to it, Kaleda said.

While arguably all advisers want to act in their participants’ best interest, the BIC will make you “contractually obligated to do so and therefore subject to lawsuits,” Kaleda said. “The DOL [Department of Labor] is using this threat of lawsuits by plaintiffs and class actions as a threat.”

It is also a good idea for advisers to embrace the lifetime income concept in rollovers, if it is not available in the plan, Kaleda said. “That will help your argument, because the DOL is very much in favor of lifetime income.”

Client Service September 29, 2015

PANC 2015: Surveying Your Clients

Executives discuss the key questions advisers should ask plan sponsors every year.
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The information that advisers can glean from client surveys can boost profits very substantially, suggested Tim Seifert, vice president and national sales manager at Lincoln Financial Group, speaking at the 2015 PLANADVISER National Conference in Orlando, Florida. 

Seifert joined other experts on a panel session exploring the theme “Surveying Your Clients.”

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Fidelity Investments has been surveying plan sponsors since 2008, said Derek Wallen, senior vice president and head of defined contribution investment only sales at Fidelity. He said Fidelity focuses on plans that use an adviser and uses a third-party research firm to conduct the surveys, not identifying Fidelity as the survey sponsor, he said.

Advisers might want to consider asking the same questions that Fidelity poses, Wallen said, starting with, “Are you looking to switch your adviser?” In Fidelity’s latest survey, 17% of sponsors answered in the affirmative. Next, ask why, he suggested. Fidelity discovered that 43% of these plan sponsors are looking for an adviser who is more knowledgeable about DC or DB plans.

Drilling down further, panelists said, plan sponsors are looking for an adviser who offers proactive suggestions for improving plan performance. Sponsors also want an adviser that proactively consults on plan design, fiduciary responsibilities, investment option selection and monitoring, cost minimization and regulatory changes, Wallen said.

“There is also a value in asking the same question over several years to see a trend,” Wallen added.

NEXT: Focus on investments

“The number one reason plan sponsors use an adviser is investment expertise, so ask them about that,” Wallen said. “Ninety-seven percent of plan sponsors review investments at least annually. Eighty-three percent of advisers provide investment advice or guidance to participants. Eighty-nine percent of sponsors say it is acceptable for their adviser to provide investment advice outside the plan, and 63% say an adviser’s willingness to take on formal fiduciary duties is very important.”

Finally, Wallen suggested that when surveying clients, “aggregate the results of your surveys to learn about your whole book of business, and consider tying in survey results to bonuses.”

Lincoln Financial’s top adviser teams spend one hour a week surveying clients, Seifert said. He said it is a five-step process: 1) determine your focus; 2) decide on the methodology, whether you want to conduct informal interviews or a formal survey; 3) create the questionnaire; 4) send a pre-survey invitation and then go live; and 5) evaluate the data and identify areas to improve your practice.

Nine key areas Lincoln Financial’s advisers explore, instructing sponsors to rate their performance on a scale of one to five, with five being the most favorable, Seifert said, are: 1) about their perception of the business relationship; 2) the professionalism of the business practice; 3) the standard of the support staff; 4) their financial knowledge; 5) their understanding of the sponsor’s needs; 6) their implementation of solutions; 7) the range of their financial services; 8) the effectiveness of their communication; and 9) their satisfaction with the adviser’s financial review process.

NEXT: An adviser’s point of view

The D’Aiutolo Institutional Consulting Team at UBS Financial Services does not conduct formal client surveys because it serves 120 401(k) plans with 150,000 participants and “each client is different,” said Paul D’Aiutolo, institutional consultant. 

“Instead, we hold roundtables with plan sponsor clients,” he said, “sometimes including the recordkeeper, and we conduct informal surveys at every client review.”

The first question D’Aiutolo commonly is interested in learning about is: “How important is the client's 401(k) to the wider business?” Next, he asks, “What services matter most? Governance, plan health or outcomes?” The third question he frequently asks is, “Would you be willing to give us a reference?” Fourth: “What might prompt you to select another adviser or recordkeeper?”

“Surveying is important for advisers,” D’Aiutolo said. “It will inform you whether or not your services are what they are looking for, and whether or not you will be able to keep that revenue stream. Of course, there are risks. If you ask them about services that you are not providing to them but that they would want, the client could find reasons to benchmark you, which is why it is very important that you follow up on what you learn.”

But the benefits cannot be overlooked, D’Aiutolo said. “Surveys and even informal discussions deepen relationships and uncover concerns. They can also lead to new services that can add great value,” he said.

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