Adviser's Best Friend

Even the most proficient adviser finds it hard to do everything on his own, and that is why many advisers leverage the expertise, services, and referrals of other professionals in the retirement industry. Those so-called strategic partnerships for advisers can be both formal and informal arrangements—with third-party administrators (TPAs), wholesalers, attorneys, and even other advisers—that are beneficial to all parties involved. Advisers and their strategic partners work together to gain clients and also sometimes to share responsibility in serving client needs.

Gregg Andonian, Managing Partner at Baystate Fiduciary Advisors, Inc., an affiliated member firm of National Retirement Partners, says that forming strategic partnerships can make an advisory business more efficient. He has established an ongoing relationship with a TPA—and that means he is already familiar with not only what its standard plan document looks like, but also what the operational considerations are.

Advisers in the early stages of building their business initially might seek out these partnerships simply for their referral power, or because they bring a needed expertise to the program’s administration. However, over time, it is natural for advisers to develop lasting partnerships. “You’re not hunting [for a new partner] unless you’re dissatisfied or disenchanted with who you have,” he says. “I don’t think it becomes a revolving door.”

One elemental strategic relationship is that of the adviser and a plan provider/recordkeeper. Some recordkeepers, such as ExpertPlan, rely on advisers to bring plan sponsor clients to them, and in turn, advisers receive support from the plan provider. Ross Brown, Senior Vice President of Sales & Relationship Management at ExpertPlan, says they first focus on what type of business the adviser has—for instance whether the business is focused on retirement plans or if retirement plans are a side project—and then offers whatever back-office or marketing needs the adviser has.

MassMutual also is completely adviser-sold, and provides individual services to the adviser, depending on the adviser’s needs. “We feel that the adviser is key to the success of the plan,” says Jamie Axford, Vice President, Intermediary Services, for MassMutual’s Retirement Services Division. He adds that it is important for advisers to “leverage a provider relationship that truly values the adviser.”

Formal or Informal?

Some relationships need to be formalized, while others do not. The important thing is to disclose all relationships to the plan sponsor client up front in an engagement letter, Andonian says.

In How to Build a Successful 401(k) and Retirement Plan Advisory Business, authors Steff Chalk and Christopher Barlow note that “written agreements create the clarity essential for a good relationship, allowing each partner to focus on the special skills he brings to the table.”

Acknowledging that arrangements that do not involve compensation might not require a formal written agreement, the book’s authors caution that, if one is developed, it is generally a good idea to include a statement of purpose, define both roles for each participant in the partnership, and goals. A “prenuptial”-type agreement also can be a good idea to establish in case the partnership dissolves.

On the other hand, Andonian says informal relationships work for his business because it is clear in his partnerships that there are no kickbacks, or opportunity for revenue for referrals.

Partnership Trends

As legislative and regulatory trends zero in on some key topics—such as fee disclosure and qualified default investment alternatives—advisers are turning more and more to vendors and wholesalers, Brown says. In the last few years, defined contribution investment-only (DCIO) providers in particular have played an increasingly important role for advisers, not only providing knowledge about their own investment products but also a wealth of knowledge about areas like plan design, Brown says. He adds that there is not a true one-size-fits-all recordkeeper for plans, and that DCIO firms “can help [advisers] appropriately determine what vendor can take care of their client needs….Advisers should really embrace the opportunity that they have with investment-only providers.”

As the regulatory trends move toward more disclosure, adviser compensation is coming under closer scrutiny, Axford says. The days of advisers doing one plan a year are dwindling, he says, and the industry is moving to those who are heavy producers in the retirement plan market. “Since all of those [compensation] items are going to be disclosed to the sponsor, advisers need to prove their value proposition now more than ever,” he says. “Sponsors are going to be looking for those advisers that have a value proposition that meets or exceeds their expectations in relation to fees.” It is a value proposition that will only grow in importance as the investment markets struggle to regain their footing.

Before You Begin

Six things to consider before entering into a strategic partnership

1. Does some facet of the partner’s business already provide adviser services?
2. Does this partnership require (or is it open to) a legal agreement, or can it be an informal relationship?
3. Are all of the partnership responsibilities spelled out in the agreement?
4. Does the agreement contemplate a way for the parties to modify and/or terminate the relationship?
5. Does the partnership provide the ability to offer services that are better/more efficient than a plan could obtain on its own?
6. What details of this relationship need to be disclosed—and how?

Common partnerships for plan advisers

Third-Party Administrator (TPA): TPAs can offer technical advice about the plan’s design, as well as administrative and consulting services. They do not typically offer investment guidance, nor are they traditionally positioned as plan fiduciaries.

Financial Adviser: Other financial advisers without retirement plan knowledge or expertise may have relationships with executives at companies with 401(k) plans.

Certified Public Accountant (CPA): Plans that have more than 100 eligible employees require an audit by a CPA—a relationship you can leverage to provide investment and/or education expertise.

ERISA Attorney: ERISA attorneys not only can keep you abreast of fiduciary responsibilities (or how to avoid becoming ensnared by them), but also are frequently a good source of referrals.

Benefit Broker: Benefit brokers can be another good source of referrals—and can be a way for you to offer a solution for benefits programs such as health, dental, or even executive compensation.

401(k) Plan Search Consultant: Getting to know search consultants for plans can get you an invitation to participate in plan searches you may not have known about, and your participation can improve the quality of the final result.

Program Provider Wholesaler: Compensated to close 401(k) plan business through intermediaries, they generally want to partner with financial advisers for service and support. They also can let you know about plans without assigned financial advisers.

Payroll Service Provider: These platforms are interested in working with advisers in order to secure their clients and, in return, can introduce you to new clients.

Illustration by Peter McCaffrey