Client Service September 29, 2015

PANC 2015: How to Ask for Referrals

Relationships, conviction and the right approach (and perhaps a round of golf) are key to getting that referral. 
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Ask cautiously for referrals, said Jeffrey Hemker, national sales manager, retirement division at Invesco, speaking at the 2015 PLANADVISER National Conference in Orlando, Florida, on Tuesday.

In a survey of some 1,000 advisers, every one agreed that referrals are important, but only 12% said they actually ask for them. “They said they were too busy serving clients to ask for referrals,” Hemker said, “or said the clients wouldn’t know anyone and they didn’t want to make the client uncomfortable.”

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There’s the crux. “Asking for a referral can disrupt the relationship [with a perceived obligation],” Hemker said. Of the three common approaches to asking for referrals—the obligation, the reciprocal “exclusive” look at the contact’s plan and the offer of something free—Hemker believes none works well. In fact, people hate the so-called exclusive offer, what Hemker termed “a good way to lose a client.”

The free offer works best, according to Hemker, who advises using conviction to point out the value brought to the plan sponsor’s own plan—savings or increased participation, for instance—and it conveys a personal concern about other retirement plans.

NEXT: 33% of plan sponsors say they’d give a referral with this approach

Hemker recommended advisers convey their concern for plans that need help with such phrases as, “This is meaningful to me—if you can think of someone I can talk to, I’d love to take a look.” About a third of plan sponsors surveyed said this softer approach would motivate them to give a referral.

Referrals are key to business, said Phil Fiore, senior vice president of investments and senior institutional consultant at FDG Institutional Consulting Group, with UBS Financial Services Inc. But, he stressed, “I literally do not ask for referrals. I don’t outright ask a CFO or CEO for names.”

Instead, after a triggering event in the plan—again, an enrollment boost or money saved, for example—Fiore’ team plans a get-together that creates an engagement with someone in the plan sponsor’s circle of acquaintances. Instead of asking, “Who’s your contact at Costco?,” Fiore explained, say, “Let’s play golf, and bring a couple of your friends.” During the afternoon, “eventually we’ll wind up talking about something positive with their plan,” he said. “It’s almost scripted, but not.”

Whether hosting thank-you dinners or paying greens fees, Fiore is unafraid to shell out for the expense from his own pocket.

If getting past the compliance department is an issue, create an opportunity to speak about benchmarking or markets with a contact. “We do it legitimately, and the partners are engaged,” Fiore said.

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.”

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