Guiding Plan Sponsors
A strong relationship between a plan adviser and recordkeeper is vital to the success of a retirement plan because both parties must be able to work well together, for the betterment of the plan sponsor and, ultimately, the participant.
“The plan sponsor expects that both the adviser and recordkeeper are going to be totally aligned to accomplish that goal,” says Mike Harger, senior vice president of advisor retirement services at Fidelity Investments. “Plan sponsors want to see that their recordkeepers and advisers are working as a team.”
It is no surprise, however, that forming a relationship that meets the needs of all parties can be challenging. “Recordkeepers, plan advisers and plan sponsors—different people with three different agendas,” says Michael Perry, president of Retirement Advisors LLC. “The key is getting all of them to work on the same page.”
The following five best practices will ensure the recordkeeper and adviser collaborate effectively to provide the sponsor and participant with the best possible service.
1) Communication/Meetings. The recordkeeper and adviser must communicate to the plan sponsor how they will work together, says Rich Brindisi, 401(k) product marketing manager at Paychex.
The recordkeeper’s responsibility is to keep advisers in the loop on the nuts and bolts of administering and running the plan, as Perry puts it—which can include information requests, deadlines, and testing and operational issues. In turn, the adviser must keep the recordkeeper apprised of demographic shifts, educational needs or of any other pertinent information from the plan sponsor.
Should an issue arise between the recordkeeper and the adviser or sponsor, the involved parties should schedule a conference call as soon as possible, Perry stresses, and the adviser should act as a mediator between the sponsor and recordkeeper.
“A good adviser is one that understands what the other party is saying,” Perry says. “If issues simmer, and they fester, only bad things happen.”
2) Education/Resources. How often the recordkeeper and adviser meet varies, depending on their relationship, but, Harger says, the recordkeeper should always keep the adviser abreast of product offerings and solutions. “That’s really our job—to make sure we’re doing a good job of staying in front of the advisers,” Harger says.
But, for the recordkeeper to supply appropriate materials, the adviser must also notify the recordkeeper of his needs, Brindisi says.
It is the recordkeeper’s responsibility to send and explain educational materials to advisers and guide them as to specific materials they can present to the sponsor. “The more general [the material] is, I think, the less helpful it is,” Brindisi says. “The idea is to make the adviser look good in the eyes of the client,” so detailed explanations of the recordkeeper’s products can be extremely beneficial. Recordkeepers should provide advisers with reports about participants and how their assets are allocated, so it is easy to identify those who are heavily invested in one security and need to diversify their portfolios, Harger says. The adviser can review these reports and decide how he wants to add value, as well as what messages and education he wants to provide the sponsor, Harger says.
3) Business Model. For recordkeepers to properly serve advisers, they must also understand the advisers’ business model, Harger says. Some advisers place more value on investment reporting or fiduciary support, while others focus on educational meetings.
According to Harger, to determine an adviser’s business model, the recordkeeper should ask questions such as, “What do you need from us so we can best serve you and the plan sponsor?” “What role do you want to play?” and “Do you want to meet with both the sponsor and the participants?”
It can be difficult for a recordkeeper to understand what information the adviser needs without knowing his business model, Perry agrees. Some advisers want the recordkeeper to handle everything, but other advisers are more hands-on and want to be informed of backroom operations, he says.
The recordkeeper’s input will be based on the adviser’s specific business model. For example, Paychex is training its sales force to be cognizant of how different advisers operate and to use educational materials and informational marketing collateral specific to each plan adviser. The sales force should be familiar with the different models advisers employ and understand how to help advisers best thrive in them, Brindisi says.
Products differ from one recordkeeper to the next, as well, so the adviser and recordkeeper should discuss how that could affect the relationship with the plan sponsor, Brindisi says. “Each [recordkeeper] will have unique capabilities just because of the overlaying parent company and business they’re involved in,” he says.
Paychex, for example, has payroll integration as part of its product offering. “These types of nuanced features will all play into the needs—and, really, the fit—of any plan sponsor,” Brindisi says. “And no two needs will be the same, necessarily.”
4) Technology. As technology advances, so does the efficiency of the adviser/recordkeeper relationship. “This business continues to evolve, and technology plays an important role there,” Harger says.
Mobile applications, in particular, grant participants easy access to information about their retirement plans and can help them become more involved in saving, Brindisi says.
However, heavily relying on technology can have its pitfalls. David Krasnow, president of Pension Advisors, says that despite recordkeepers producing the most cutting-edge tools, participant usage is still low. Thus, as recordkeepers and advisers develop new applications for 401(k) plans, user-friendliness needs to be top of mind, Krasnow says.
But at no time should 401(k) plan advisers or service providers regard technology as a crutch, Krasnow adds. All the technology in the world does not replace the value of meeting with participants, who need in-person, simple explanations, he says.
5) Deadlines/Fee Disclosure. To help the recordkeeper, advisers should stress to plan sponsors the importance of meeting deadlines for requirements such as regulatory tests and reporting, Harger says. “The adviser and recordkeeper can provide high-level service to the plan sponsor while meeting regulatory deadlines,” he says.
Plan sponsors may not always recognize the urgency of supplying information, or they may be busy with other obligations and forget. This is where advisers can say, “I know this is a pain for you to do, but here’s why it’s important that you give [the regulators] this information quickly,” Perry suggests.
With new regulations in place, a close relationship between advisers, sponsors and recordkeepers is even more important. To prepare for Employee Retirement Income Security Act (ERISA) section 404(a)(5)—the participant fee disclosure regulation—all three parties must communicate often so that the necessary information can be prepared before the regulation’s August 30 deadline, Krasnow says.
Under the 408(b)(2) regulation, which required covered service providers to disclose information about fees and services to plan sponsors of ERISA plans starting July 1, Brindisi says advisers and recordkeepers will need better communication on a corporate level regarding what role advisers will play.
Obtaining key information from recordkeepers and proactively, expertly guiding plan sponsors through their obligations are two guiding principles that will allow 401(k) advisers to provide excellent service for sponsors—and to set their practice apart from the competition.