Cross-Selling Challenges
Ongoing market pressures to streamline financial services pose major growth opportunities for retirement plan advisers looking to cross-sell their services. But that potential could be hampered by the wrong implementation strategy and regulatory challenges, including the Employee Retirement Income Security Act (ERISA) fiduciary updates in 2014.
“We are pushing very aggressively to have our financial advisers utilize cross-selling techniques on a daily basis,” says Bob Steinke, head of the retirement insurance solutions group at New York-based financial services firm Janney Montgomery Scott LLC. “We want them engaging with their clients in a comprehensive retirement planning process beyond just contributing to the retirement plan.”
The technique is hardly new. Banks have long labored to increase their product/client ratios by packaging services in a way that encourages bundling. The idea is that a client is more likely to cancel a single checking account than one paired with a savings account, a mortgage, an individual retirement account (IRA), student loan debt or other financial product. For retirement plan advisers interested in cross-selling to retirement plan participants, opportunities abound in rollovers, IRAs, annuities, retirement income products, health care, insurance and wealth management.
What is new, according to Steinke and other cross-selling strategy experts, is the data from recordkeepers and the use of customer relationship management (CRM) software to manage it, giving financial advisers unprecedented access to information on customers and behavioral trends. Also critical to the cross-selling conversation is the pending fiduciary definition update and new types of prohibited transactions expected from the Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA).
To Cross-Sell or Not to Cross-Sell?
Steinke stresses that successful cross-selling is not simply a matter of throwing extra products at retirement plan participants in the hope that one might fit. Instead, he calls it a function of communication, collaboration and trust between advisers, plan sponsors, executives and participants.
“Our financial advisers can’t just look at clients as plan participants who go away when they retire,” Steinke says. “If you’ve got 100 or 200 participants in a plan and the adviser develops a nice profile within that organization, as those clients hit retirement, that’s where we get into our sweet spot.”
As clients exit a plan, advisers can target them with time-sensitive services such as those noted above. In cases where the adviser has developed a personal relationship with the participant-turned-retiree, Steinke says, he can often win the right to provide ongoing personal wealth management services.
“The success [in cross-selling] transpires because of the quality of the relationships,” says Debora Roey, head of Janney’s retirement insurance solutions group. “We’re encouraging our advisers to not just talk about the products they offer but also about topics such as Social Security, Medicare and all the different factors that are important to our clients as they enter retirement.”
Another approach is for an adviser to target executives in management and human resources (HR) or on the retirement plan committee, who may be likely to carry their trusted retirement plan advisers with them as they switch jobs over the course of their careers.
“Some of our biggest business for sponsored retirement plans resulted from a single client who went on to work with three different, subsequent companies,” Steinke says. “All three of those companies are currently still working with us.”
The impact of introducing a cross-selling philosophy can be huge on a financial adviser’s bottom line, according to a recent study published by NFP Advisor Services Group.
The study, based on the results of a survey reaching roughly 400 U.S.-based advisers, found that firms offering a suite of comprehensive corporate services win personal wealth management business from about 90% of their corporate clients. That compares with 60% for firms that focus more on wealth management or general retirement plan services alone.
Effective cross-selling is not accomplished by hiring a single retirement plan adviser, says James Poer, CEO of NFP Advisor Services Group in Austin, Texas. Rather, successful cross-selling requires the vision to bring together a team with varying core competencies under a single brand.
“It’s the firms we work with that are taking this approach that are the most successful,” Poer says. Poer recommends that small, independent advisers who lack the staff or capital to invest in new business lines consider forming partnerships with advisers who have the required expertise. “We’ve often seen that kind of arrangement acting as the seed of what later will become a more successful, united business,” Poer says.
Another core piece of the cross-selling puzzle, according to Michelle Morey, director and practice leader with New York Life Retirement Plan Services in Westwood, Massachusetts, is the constantly improving CRM technology that allows advisers to track, interpret and project customer data down to the individual client level.
Morey, speaking recently at a retirement planning solutions forum hosted by AllianceBernstein, likened developments in financial services CRM to major advances in the field of medicine, allowing doctors to crunch data from a patient’s health record to predict the likelihood he will suffer a heart attack.
Retirement plan advisers who leverage CRM software have access to equivalent data tools that can be used to predict which clients are likely to require what services at what time. Sales and marketing efforts can then be more effectively targeted, leading to more profitable and efficient business operations, Morey said.
One such tool set is available to advisers through the Microsoft Dynamics CRM platform. The financial services vertical has grown into one of the technology giant’s top CRM revenue lines, says Chad Hamblin, a product marketing manager at Microsoft in Redmond, Washington, who helps lead the Dynamics financial services team globally.
In addition to generating data on demand, Hamblin said, CRM platforms also provide centralized and proactive communication pathways for whole client bases, as well as a host of tools that can improve recordkeeping accuracy and even help a fiduciary ensure compliance.
New Restrictions in 2014?
It is likely the DOL will issue the promised fiduciary redefinition within the next few months, says Dan Notto, senior retirement plan counsel at AllianceBernstein in New York.
The potential impact of the definition’s update on advisers’ cross-selling efforts could be significant, especially for those who target plan participants for IRA rollover services. “There appears to be a belief among observers that the new rule will cover IRAs and IRA rollovers, so that the advice to the participant in a qualified plan to take the money out of the plan and roll it into an IRA would be considered a fiduciary act,” Notto says.
He believes it is difficult to predict more specifically what the bottom-line impact on business operations and cross-selling models might be before the actual ruling comes out.
“If you are in a position where you are giving advice on rollovers, then you are already subject to ERISA’s conflict of interest rules,” Notto says. “If, as a result of your advice on a rollover, you receive more in fees than you otherwise would have received, that’s a potential conflict of interest.