The PLANADVISER Interview: Michael Francis, Francis LLC

Earlier this year, Michael Francis and his retirement plan advisory team went through a rebranding to Francis LLC from Francis Investment Counsel.

The name change, he says, was not just cosmetic. The firm made the move to emphasize that it is not—like many retirement plan advisement competitors—part of the trend of syncing plan sponsor advisement with wealth management for participants.

“Francis believes that the American worker deserves better,” Michael Francis said in the press release announcing the name change. “That’s why our advisers get paid only for their time and expertise, just like you pay a good lawyer or accountant.”

Francis, who has a law degree from Marquette University, actually began his career in wealth management. But when clients started asking about setting up 401(k) plans for their companies, he caught a bug that would eventually lead him to opening his own retirement advisory practice.

Francis LLC now has 22 employees across its offices in Milwaukee and Minneapolis, with plans to expand to a third location. The firm advertises conflict-free advisement, with compensation tied to the amount of time spent and the complexity of assignments

Francis spoke with PLANADVISER about his firms model and why he believes it should be the future, not the past, of retirement plan advisement.

PLANADVISER: You started out in wealth management. What did you experience in that field that influenced how you operate now?

FRANCIS: I started out in that world and understand how pervasive the conflicts [of interest] are, because that entire industry is built around selling. When you are in the middle of that industry, it is, I think, impossible to recognize how ERISA [the Employee Retirement Income Security Act] prohibits so much of the business model that you have built and grown up with.

At the heart of the matter is that, when ERISA was crafted … there was a significant amount of attention paid to conflicts of interest. Because of that, [policymakers] said, ‘Why can’t retirement plan participants get the same protections that we give clients of CPA firms and we give clients of law firms?’” The gist of ERISA is really to protect retirement plan assets from conflicted advice.

When we decided to cut the cord from the mother ship and set up our own [retirement plan advisement] shop in 2004, we structured it with the intent purpose of being an ERISA-compliant investment adviser to retirement plan sponsors and their participants.

PLANADVISER: If you ask a retirement plan advisory shop with a wealth management division about their model, they will say there is a strict firewall. Why don’t you see that working?

FRANCIS: The average American worker hasn’t accumulated a lot of money. Therefore, they have spent very little time interacting with the traditional wealth management industry. They are largely relying upon their employer, and don’t believe that employer would put someone in front of them that would hurt them.

With that background, you can see that the adviser is in this position of trust with a significant profit motive to steer people in one direction. It’s like the water that a fish swims in: [The adviser] is so surrounded by that motivation and recognition— and I believe it’s often subconscious—that it colors everything they do. That makes the job for the plan sponsor so very difficult to ascertain what is in the best interest of their participants.

PLANADVISER: As we report on the industry, though, the combined model is dominating the marketplace, and more entrants are coming in. How do you see your model succeeding? 

FRANCIS: There are some programs out there that, like us, aren’t selling wealth management products or services. But they also don’t provide investment advice, because they are focused on education. All of the places that provide advice are also offering this wealth product on the side, so to speak, and that is where the conflicts come in.

I like to use the accounting and legal professions as my litmus example. Let’s say you go to an accounting firm and say, ‘I’ve got a transaction I need to make, and it’s a lot of money. I’m not sure if I should go this way or I should go that way, and I want you to advise me on the tax ramifications to help me make this decision.’ You’d pay an accounting firm a good chunk of money to help you make that decision. But if, at some point in that process, you learned that the accounting firm could affect its own compensation based on the advice it gave you, it wouldn’t work. You’d find another accounting firm.

Or let’s use the legal industry as an example to illustrate another point. … If you went into an estate planning attorney’s office and said, ‘I have some money here. I want to protect it. I want to pass it along. And I need some help to do that.’ If that estate funding attorney said, ‘Well sure, you’re going to need some trusts, some durable powers of attorney, etc., and we can prepare all of those documents and make sure they’re up to date. And we’ll only charge you half-a-percent on your liquid net worth for the rest of your life for that advice.’ Here again, you’d look at that individual like he was nuts.

But that’s not the way those industries are structured. If one attorney won’t give you a flat fee for advice, you’ll go to the next attorney who will. If that accounting firm is making money off what they are recommending, you’ll go to one that isn’t. In the retirement plan industry, unfortunately, there just aren’t a lot of firms like ours to provide the marketplace with that choice.

PLANADVISER: What about those participants who do want wealth services? Especially as the 401(k) industry matures and more people are managing their own retirement income distribution and assets?

FRANCIS: In our experience, we think it’s the folks that are just starting out and the folks that haven’t managed to accumulate much wealth, whether through their plan or elsewhere, that really need the most help. Because the high-income folks, or the high-plan-balance folks, oftentimes they have their own attorneys and their own accountants already, so they’re reasonably in good shape.

It’s 80% to 85% of the rest of the folks who the plan sponsor really needs to care about and should be focused on and getting services and advice. If you’re working with an adviser with a wealth program, they’re just going to be laser-focused on that top-tier people that they will truly give the hands-on service to. 

Our model is to devote two to three of our advisers to each larger organization. They are the ones reaching out, they’re the ones going on site once or twice a year to the various locations. They are the ones doing the webinars. … It creates a relationship, and [the participant] can say, ‘There’s somebody I can call if I don’t understand this stuff.’ Or, ‘If I have something come up in my life that affects my finances, and I don’t know exactly how to deal with it, there is a person I can call.’

There’s no shortage of folks who have gotten into our industry, not because they wanted to get rich, but because they wanted to help people. Our model provides this happy medium, where they can help people, go home at night and feel good about what they’ve done, but also bring home a six-figure paycheck to their family. That’s how it’s done.