PANC 2015: Micro Plans

“Plan sponsors with less than $20 million in assets under advisement are generalists with a lot of responsibilities, and they are strapped for time,” said Benjamin Lewis, senior managing director, direct plan market, at TIAA-CREF, speaking on the “Micro Plan” panel at the 2015 PLANADVISER National Conference in Orlando, Florida. “They need an efficient solution and are not very well covered, so it is a great opportunity to grow your business. Their process is simplified. They rely on referrals as opposed to RFP [requests for proposals]. If you have experience in their industry, they value that.”

In the not-for-profit K-12 education space with 100 or more employees, only 25% use advisers, Lewis said. In the corporate space as well, “sponsors are underserviced,” said Jennifer McPherson Franton. “The opportunity is there for you to differentiate yourself. Why are advisers moving down market? Advisers in the mid to large market are getting squeezed. They have to reduce their pricing, which is why advisers are looking down market for more stable clients.”

Of the billions and billions of dollars of assets in 401(k) plans in the United States, a surprisingly large portion is in the micro market, noted Jason Roper, divisional vice president at MassMutual Retirement Services. “You can really be a hero for these clients,” he said.

As to what micro plan sponsors are seeking help on, they want help on the basics. “They want to reduce their effort and risk and provide service to their participants,” Lewis said. “Ninety percent of micro plan advisers consult on investments and provide education. Fifty-five to 60% conduct fee assessments and compliance monitoring.” They are also particularly interested in 3(38) fiduciary services, he said.

NEXT: Seeking out the micro plan business

“The smaller the plan, the more likely they will turn to their personal financial adviser, so retirement adviser specialists can partner with wealth management advisers,” Roper said. “That gives you a great opportunity to get into the micro space.”

Lewis said that TIAA-CREF specializes in the not-for-profit space, and that to find leads, he turns to the C-suite, since many of those executives serve on not-for-profit boards. “Third-party administrators are also a great source for leads across all the markets,” he said.

As advisers go down market, they need to move from customized models to standardized models, McPherson Lewis said. “Platform providers can supplement you with such things as education,” she said.

It is also critical for advisers to educate micro plan sponsors on the importance of an investment policy statement and a retirement committee, Roper said. Furthermore, small plans often want ancillary offerings, such as 529 college savings plans, Roper said.

As far as what trends from the large plans are moving down market, smaller plans are beginning to embrace more aggressive approaches to plan health and financial wellness, Roper said. “Clearly, what happens in the large market eventually moves down market,” he said. In addition, smaller plans are beginning to issue RFPs, McPhearson and Franton said.

TIAA-CREF has developed a tool specifically for micro plans that shows participants their income replacement ratios, Lewis said. “We use that in advice sessions with participants. We can show them how they compare to other individuals,” he said.