The Delicate Balance
Most of us quickly can bring to mind the shortlist of friends, co-workers, or relatives who live their lives within a reasonable proximity to the “technology frontier.” These individuals are consistently the first on the block to upgrade—and share with you—their newly acquired high-tech gadgetry, whether it be in their car, at the workplace, or within the home. Technology has a history of being a wonderful contributor to workplace efficiency. (The two most notable “productivity enhancers” for businesses during the 20th century are computers and air conditioners, each of which made a substantial contribution to employee productivity in the workplace.)
Most who operate within the confines of the business or corporate world have the option to embrace technology—that is, of course, unless you happen to be a retirement plan adviser. Retirement plan advisers, although they might prefer to embrace technology, find themselves dancing at the center of a trichotomy of interests.
Stating the obvious
Retirement plan advisers are in this business, primarily, to assist their clients—whether plan sponsor, plan participants, or a combination of the two—in amassing the maximum assets possible, in the interest of having the plan participants be, and feel, comfortable upon reaching retirement age. That is a static charge and has been the driver for most retirement plan advisers for at least the last 10 years.
What is the challenge?
Accepting the premise that technology improves productivity and increased productivity lowers operating costs, which in turn can reduce fees paid by the client, thus resulting in (hypothetically) higher account balances at retirement, there exists one looming question: Why is new technology, specifically social media, still vilified by the regulators?
After remuneration to a broker/dealer (B/D) for services rendered, the highest expense for most registered reps, agents, and registered investment advisers is the category of new client acquisition. Frequently, there is a comparison made between the cost of “keeping an existing client” versus the cost of “acquiring a new client.” Those comparisons are not even close! If you add an adviser’s “time” as a commodity, the differential is of a greater magnitude and acquiring a new client is even more expensive than one originally might think. One of the top challenges for retirement plan advisers today is in bringing an increased efficiency to the process of business acquisition.
What is the front for this knowledge-transfer battle?
For years, I have been a proponent of increasing operating margins by improving operating efficiencies in deference to the activity required to add 10, 15, or 20 more accounts to the book.
Compliance departments and the B/Ds have no choice but to enforce the strict guidelines that the regulators have set forth—guidelines that include defining the use of social media as advertising. Doing anything else in this litigious environment would be akin to placing a single bullet in the revolver cylinder, spinning it, and pulling the trigger. However, could the fee landscape make a seismic-shift-downward, if retirement plan advisers were permitted to avail themselves of a powerful and cost-effective methodology (social media) for taking their story to the street? If an adviser can spread fixed costs across a greater number of clients and new client acquisition costs are measurably reduced, is it not a reasonable assumption that an adviser could retain a portion of that savings and pass the remaining savings to clients?
Could the next cost-savings solution be one of the existing social media sites or is it perhaps a new site similar to the Central Records Depository? There seems to be no guesswork involved in that fully functioning system for clients, prospective clients, B/Ds, and regulators.
It is past the time that our industry practitioners should be permitted to utilize the technology of the day and corresponding tools, for the benefit of all involved. We are speaking of an antiquated marketing restriction that forces retirement plan advisers to guess continually, and dance around the real issue of what they can—and cannot—do along the lines of social media. This regulatory restriction may be unnecessarily inflating the expense column of the retirement plan adviser’s general ledger. Is this practice propping up the fees that advisers must charge clients? Perhaps the time is now for this anachronism to be addressed swiftly.
Steff C. Chalk is CEO of the Fiduciary Consulting Group, a fee-only fiduciary consulting practice serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author of How to Build a Successful 401(k) and Retirement Plan Advisory Business.