Concerning Thoughts

With all the discussion in the industry about fee compression, only about 10% of retirement plan advisers who responded to our annual Practice Benchmarking Survey, this summer, cited that as their main concern.

The No. 1 concern—cited by about 30% of advisers—remains the same as it has been every year: adding new clients. The other top four sources of adviser anxiety were fee compression (9.8%), practice management (9.3%), government regulation (9.1%) and profitability (9.1%). You can see the complete list, and all of the survey results, beginning on page 36.

What’s interesting about those five concerns is that the last four all relate to the main one of adding new clients. In fact, when looking at fee compression, practice management and profitability, one must admit that adding new clients is a fairly expensive endeavor. The time that goes into prospecting, responding to requests for proposals (RFPs) and onboarding the client is time taken from other, current clients—time that must be counted and amortized over the, hopefully, newly won client relationship. And, of course, if all that prospecting work doesn’t result in a signed contract, your existing clients have to absorb some of the costs in their pricing.

Then there are staffing concerns as your practice grows. Every time advisers add a new staff member in preparation for attracting new clients, the profitability quotient for that practice goes down. So, if adding new clients is a top concern, it makes sense that fees were second, and profitability made its first appearance in the top five.

As you devise your prospecting strategy, think about the fact that our annual PLANSPONSOR Defined Contribution (DC) Survey showed that about 40% of plans neglect to work with an adviser. This is an excellent target market. While you will have to sell the plan sponsor on the value of your services, at least you won’t have to compete with a fellow adviser!

And, as you look to grow your business, you must be careful about pricing your services. Whether the plan sponsor already has an adviser or not, I’d venture you still have to make yourself relevant to sponsor clients to command the fees you want.

At this year’s PLANSPONSOR National Conference, in June, it was very clear that just to get heard by retirement plan sponsors is a huge hurdle. We polled our plan sponsor attendees and learned that, although 85% said they are concerned about their work force being unable to retire, and 55% said they thought offering a company retirement plan was a competitive advantage, only 21% said their retirement plan strategy ranked in their top five corporate priorities, and just 11% said their retirement plan was important to attract and retain employees. All the rest pointed to health care as their main priority. So, for most plan sponsors, advisers trying to get their attention about the retirement plan is just noise.

Do you also find that health care is more important to your clients than their retirement plan? It might be wise to become more knowledgeable about the subject—our feature on page 90 can help. And link health care to your clients’ DC plan, if you want them to care more about the plan and be willing to pay for added services and benefits to improve plan outcomes.

Ultimately, as an industry, we all want Americans to achieve some sort of retirement success, and we’ve been quite focused on this concept of creating better participant outcomes. I think that’s the right message to send, but I’m not sure it is being received.

Returning to our conference attendees in Chicago, although about half said they have a goal for their retirement plan, 82% said they have never defined what plan success means. Moreover, only 14% of plan sponsors at the conference used retirement readiness as a retirement plan benchmark.

I often hear that part of the problem is getting the chief financial officer (CFO) or finance group to “buy in” to the outcomes conversation, because one of them fails to see how spending more now could save more later. Research suggests that a financially distressed or older worker can cost an employer $2,000 every year in increased health care costs and lower productivity, not to mention increased time off and worker’s compensation, proving there are real costs to keeping people in the work force longer.

Bringing that back to your top concern of getting new clients, and your clients’ top concern of health care, you need to show that outcomes matter, that helping people retire matters—because the company will pay for them, eventually.

You want to be the adviser who adds above-average service (and gets to charge above-average pricing), bringing in new clients as a result. Being attuned to plan sponsor needs and concerns can help you get there.