Filling in the Gaps
“What is your area of differentiation?” asks Heidi Walsh, Vice President and Director of Intermediary Relations at T. Rowe Price. “Each adviser has his or her own business model, and the key is the ability of the recordkeeper to be flexible to fill in the gaps of services where the adviser does not want to do them, or where they can be done more efficiently on the recordkeeping side.”
For advisers finding a recordkeeper fit for a plan sponsor client, these five recordkeeping services can be key, depending on what gaps an adviser needs a recordkeeper to fill:
1. Get fiduciary and plan-design support for sponsors. “Fiduciary protection has always been a concern but, in the past couple of years, it has escalated to another level” for sponsors, says George Castineiras, Prudential Retirement Senior Vice President. Much of that revolves around investment management, so look for a recordkeeper that has strong investment due-diligence practices and institutionally priced shares, he says.
Recordkeepers can assist with plan-design issues, too. “Your provider should be able to do an assessment of the existing plan design and benchmark it against other plans,” says Deanna Garen, Managing Director of Participant Solutions at New York Life Retirement Plan Services. That includes evaluating elements such as a plan’s match structure, automatic enrollment and auto-escalation features, types of investment offerings, advice programs, and fees. In addition, recordkeepers can help gauge plan-design results. “It is not whether [plan sponsors] offer managed accounts or advice, but how many participants are using them,” she says. “Fiduciary support includes a lot of compliance and plan-design resources, but you also have to get participants to use these things.”
“The power we offer is recordkeeping data,” Walsh says. “We can look at participant data, analyze it, and offer suggestions on how to fix problems.” That could mean sending written communications to participants who do not defer enough, for example, then following up by phone via T. Rowe’s call center. “They pick a tool out of our toolbox,” she says of sponsors and advisers.
2. Help clients balance fees and value. Sponsors and advisers focus a lot on fees during provider searches now. “We have seen an awful lot [of searches] go to a commodity-based environment,” says Steve Smith, Vice President at Diversified Investment Advisors, Inc. “[Many advisers] feel that a lot of the value propositions that providers have are the same,” he says. “They view it as one provider is not standing above another. Advisers are telling sponsors, ‘I can come in and evaluate the plan and take it out to market, and find the same services for less.’”
Garen also sees a lot of fee-driven searches currently. “We try to encourage them to balance the value and the fees,” she says. “If they look at fees alone, they may sacrifice things that are of value to their participants. There is no requirement ever that they pick the lowest fees possible: They need to have a prudent evaluation process that balances the fees paid with what they are getting.”
Advisers and sponsors “should expect full transparency, with no excuses—period, end of story,” Castineiras says. “It should be disclosed clearly on the statement and on the Web site and, most importantly, when the plan sponsor as a fiduciary is making decisions.” Transparency also means finding a recordkeeper that willingly sits down with an adviser and plan sponsor to talk about costs. “The biggest issue is, am I getting the right value for my fees?” Walsh says. A recordkeeper should be able to meet with an adviser and break out the specific expenses in a plan (for example, doing manual calculations every quarter, or semiannual face-to-face participant meetings) that a fee-conscious sponsor may want to consider trimming or that an adviser may be delivering.
3. Search for things that help you work better with clients. Asked what recordkeeper tools and services advisers consider key to doing their jobs better, Castineiras cites several: communication/education programs and tools for participants that drive results; regulatory and legislative insights and guidance; innovative solutions such as asset-allocation tools that allow an adviser to customize portfolios for a plan; and training.
“It is usually things like investment analysis, sample education materials, and information on market trends and research data,” Smith says. “They can tweak it and make it their own.” Some advisers want to co-brand on materials given to sponsors and participants, he says, while others do not.
4. Match the educational philosophy with the employer and adviser. Some advisers do a lot of participant education, and some do not. Some providers put more emphasis on face-to-face participant communications and education than others, and the right answer for a plan depends on factors such as its participant demographics and cost sensitivity. “There are still a lot of plan sponsors who are comfortable with people coming out and doing meetings live,” Smith says. “More and more providers shy away from that, because it costs too much.”
Targeted communications are becoming more technology-based, Smith says, despite the sketchy success record of online tools in the past. To address that, he says, “It becomes push-oriented. So, I feed it to you, instead of you having to go get it.”
However, some providers’ education philosophies still consider regular in-person contact important. “It is still perfectly reasonable to expect face-to-face education,” Garen says. Some providers “may feel pressure about better containing costs,” she says, but just using online tools, “you are not going to reach enough participants.”
5. Pay close attention to user-friendliness. Call centers and participant Web sites remain points of differentiation among providers rather than commoditized services, Garen says. Ask for a recordkeeping call center’s “once-and-done” statistics, Castineiras says, which indicates three things: the percentage of participant contacts resolved on the first call, which he says is a key client-satisfaction driver; the sophistication of the recordkeeper’s tools for call-center staff; and the level of ongoing call-center staff training.
Judge participant Web sites in terms of their practical usability, too. Look for keys such as a Web site’s intuitiveness and ability to guide people to actionable steps, Garen says. Always do a site visit during the search process, she suggests, and request a tech demonstration. That can give advisers and sponsors a better sense of how a participant Web site works than if they just try a demonstration CD back at their office, she says.
In addition, seek out a provider with good tools for participants to do a gap analysis of their retirement savings, Smith recommends. “You have got to really dig into the depth of those tools,” he says. “Many are very technology-oriented, with solid modeling, including working with outside firms to help build model portfolios, versus other firms that do nothing more than have participants fill out a worksheet, or use very generic models.”