Selling Points

Last issue, PLANADVISER introduced the finalists for the Retirement Plan Adviser of the Year and Adviser Team of the Year awards.* We recently conducted virtual interviews with each of them, and asked them to share their insights on business-building ideas, practice management, and what they think advisers do wrong in the retirement plan marketplace.

PA: What’s the hardest lesson you had to learn about working with retirement plans—and how did you learn it?

Barbara Delaney: The hardest lesson I learned is that what is important to the plan sponsor today almost always will change in the future based on market conditions. I had a plan that wanted nothing but good employee meetings that were well attended and easily understood. After one year, the hot topic was fiduciary oversight. When our reviews concentrated on employee meetings vs. oversight, the sponsor became aggravated that we did not do enough to speak to fiduciary concerns. The lesson learned, everything is important at all times and needs to be discussed.

Tom Noble: The hardest lesson I learned is that you will lose clients. Many of those reasons are outside of our control. Personnel turnover at the company contributes to most of those situations that become “at risk.”

Brett Howell: Early on, we assumed that fees were the most important factor for plan sponsor prospects, so we emphasized to potential clients the additional wrap fees they might be paying or the hard-dollar fees that might be less if they were to hire us as their financial adviser. We helped negotiate better fee arrangements with their existing providers, but didn’t necessarily win much business. Clearly, the value we brought to the table as financial advisers was a bigger factor than the fees themselves.

Gregg Andonian: The hardest lesson was that no matter how sincere and earnest you might be, you cannot get all clients to do their job, and that you need to be able to let a client go (i.e. fire a client) in order to hold true to yourself.

PA: From your experience, what common mistakes do advisers make in building their practices?

Kendall Storch: Greed is not always good. Too often we come across retirement plans where the fees are just too high. The existing advisers may very well have been able to keep the business if they had reduced their fees sooner rather than later. By the time we come in and show the sponsor what they actually are paying, the previous adviser has a lot of explaining to do.

James Sampson: I think that advisers often underestimate the time involved in servicing a retirement plan. One cannot dabble in retirement plans; it should be a primary focus of the practice. If an adviser is not an expert in retirement plans, he should take the time to become one, or look to hire one. When it comes to educating employees, they don’t care how smart you are, they want to know what’s in it for them. Too often, advisers will use a bunch of industry jargon and lingo, and most employees tune out in the first five minutes. Advisers should focus on the importance of saving, and sharing ideas and concepts that people can use to build a strategy, and avoid the common investing mistakes.

John Barry: I think that is a very personal and individual question. When I worked for an independent brokerage firm as a recruiter, I asked advisers who came on board, if they were to start their practice over again, what they would do different? The most repeated answer was to not try to be everything to everyone and to concentrate on what they do best. Too many of them had tried to be a financial adviser to individuals, dabble in 401(k)s, put together comprehensive financial plans, and so on. They spread themselves too thin.

Howell: In my experience, the most common mistake advisers make is making promises that they can’t deliver on. All too often, we meet with prospective clients and discover that their current provider provided satisfactory service early on in the relationship but, as time went by, the service level diminished significantly, oftentimes to the point where there was little adviser-sponsor contact.

Noble: I believe most advisers struggle with capacity issues. It is much easier to decide to stop growing than it is to spend the time and money finding the talent, training them, giving them office space and paying them out of your pocket.

Delaney: Not having a target market and pricing their services too low to make a profit.

PA: What do you expect from your plan sponsor clients? What do you expect from your 401(k) plan providers?

Howell: We expect our plan sponsor clients to be clear with us about their goals and expectations for their retirement plan and the services they’d like us to perform for the plan. We also hope they will engage in an ongoing dialogue with us to ensure we are continuously measuring—and meeting—those goals and expectations. Ultimately, we really enjoy working with plan sponsors who are committed to helping employees have the best possible chance to create a successful retirement plan. From our 401(k) plan providers, we expect a robust platform capable of meeting the complex needs of sponsors and participant alike. We expect to have access to tools that allow us to service the diverse needs of our clients and to be able to draw from the breadth and depth of the provider to enable us to provide consultative services. And of course, reasonable fee structures and best-in-class investment choices are essential.

Storch: The most successful relationships we have with clients are when they view us as “partners.” If we do not have a partnership with our clients, the relationship never seems to get off the ground. The minute we get the sense that a plan sponsor is looking at us like a commodity, we know it’s not going anywhere. Our expectations of 401(k) providers are primarily that they service our clients well. The service end of things is really what separates the different providers from one another. And, it is also the hardest part for 401(k) providers to deliver on. Return phone calls, quick responses, a can-do attitude, go a long ways.

Noble: I expect to be the first call from any of my plan sponsor clients if they have questions or concerns. I can fix their issues. I expect my plan providers to reinforce our value as advisers to our joint clients. I would also expect referrals to others if we can show a level of service far exceeding others they deal with.

Andonian: I expect my plan sponsors work with me versus against me in regards to implementation of prudent plan governance as well as to allow the participants the flexibility to meet with me during company time. I expect a 401(k) provider to enable access to a true open architecture platform (excess of 6,000 funds with no proprietary limitation) with full disclosure and offset utilizing any 12b-1/sub TA fee’s along with providing the appropriate technology for plan level submissions and participant tools (online enrollment/real-time and immediate access/real-time pin and password changes).

John Leeson: From plan sponsors, it’s all about our process. Once they understand and see how our fiduciary process works, they are able to demonstrate the decisions that they make are truly benefiting the plan and its participants. From plan providers, we expect integrity and a high level of quality service. As independent advisers, we put ourselves in the position of being in between the plan sponsor and the plan provider as an educated and independent advocate for the plan sponsor and the participants. If a provider isn’t providing the level of service that we and our client expects, then they may be excluded from future bid processes until they get their service model corrected. From a plan provider’s perspective, they understand that if they work hard enough to win the business of one of our clients, we will do everything that we can to make sure that both sides are living up to each other’s expectations.

Sampson: I expect that my clients understand that I am their trusted adviser for their retirement plan. Similar to their accountant or their attorney, when they have a question about their retirement program, I want them to come to me first. I work for them, not the various providers. In addition, I want them to allow us to do what’s most important, and that’s get in front of their employees to help educate and motivate them to take control of their retirement. I want plan providers to make it easy for me to do business with them, and keep me in the loop when communicating with my clients. I expect them to keep me up-to-date on industry trends, and to be thought leaders in the industry. I want them to provide quality products and services to my clients and provide clear information to me and my clients, so we can do the best job we can to give them the tools they need to succeed.

Delaney: I expect our clients to be honest with how they feel about the services they are receiving from both the vendor and us. If there is a problem from any perspective, we and the vendor should have an opportunity to fix it. I would expect the same treatment from the vendor. If the vendor sees that the client is getting frustrated, we would expect a call and vice versa. Honesty is everything in this business.

Blake Thibault: We put all of our expectations in writing. We have a document that spells out all the roles and responsibilities of the client, provider, and Heffernan Financial Services. We feel that, if all of the expectations are in writing, then each party can be held accountable. We expect a lot from our providers. We are their client and expect prompt service and a full partnership on behalf of the client. When it is a bundled plan, we want a dedicated client relationship manager along with prompt, accurate, and courteous service. Proactive communication with all parties is essential.

PA: What are the most important issues that your plan sponsors face with their company retirement plans, and what specific actions do you take to assist them in overcoming those issues?

Delaney: The most important issue is the determination of adequate employee savings rate. I am convinced that participants think if they save 6% they are saving enough. The Pension Protection Act (PPA) is really helping with auto escalation and I think when we look back at this, this will be bigger than Employee Retirement Income Security Act (ERISA).

Leeson: Most of the plan sponsors that we bring on as clients need help in the structure of overseeing their retirement plans. Most of them have a committee already established. We bring in the structure of reviewing investment options against an Investment Policy Statement, making changes when needed, making sure that the proper asset classes are offered, etcetera. Also, with the target-year portfolios that we develop for our plans, it makes educating employees much easier. The worksheet that we have developed for our target-year portfolios has become a staple in our clients’ new hire packets. One proof statement that we monitor is the number and dollar amount of rollovers into the plan after our services are implemented. This tells us and the plan sponsor that the participants are pleased with the enhancements made to the plan’s investment offerings, and that our education efforts have been successful.

Noble: Our clients are most concerned about their fiduciary liability and rely on our team to teach them their responsibilities and use proven processes and procedures to minimize their exposure.

Thibault: At this time I feel that the most important issue facing our plan sponsors is their fiduciary responsibilities. They need to understand their role and have a good process in place to make sure they are fulfilling it. Nothing says that they must have the least expensive costs in their plan, nor the best performing funds, but they do need to know what the plans expenses are and have a process in place to pick and monitor. We feel that this is going to be the year of fee transparency and disclosure.

Storch: In our opinion, the biggest issues sponsors face are making sure they are protected adequately from a liability standpoint, ensuring that their employees are going to retirement comfortably and feeling comfortable that they are administering their plan correctly. From a liability standpoint, we work with sponsors to craft investment policies, establish/moderate investment committees, and perform investment due diligence. While this may not be revolutionary, there are still plenty of companies that have little or no processes or procedures in place. Lastly, helping sponsors confirm that the operation of the plan actually fits with what their document says.

Mike Hudson: Understanding legal updates and plan fee and revenue-sharing.

Andonian: Uncovering fees and expenses related to the plan that are being charged either directly or indirectly to participant accounts coupled with a lack of understanding over prudent procedures to both mitigate fiduciary liability while enhancing participant benefits. One of my initial tasks for a new client (and then every three years) is to perform an executive summary of the current plan (features/expenses/fees) side-by-side against five platforms in the marketplace.

Barry: One issue that affects us all is Social Security. Now more than ever proper retirement planning is paramount. The days of the gold watch and pension are gone. Educating employees is the most important thing we can do. Having them understand how valuable their 401(k) is for them and how important it is to start saving is the difference in retiring at their chosen age and not the age chosen for them.

Sampson: The bottom line is, people just don’t save enough for retirement. We’ve implemented auto-features at many of our clients, and recommend it to almost all of them. We also offer a Certified Financial Planner to all employees of our client companies at no additional cost. He’s a salaried employee who takes a holistic approach to retirement savings, and isn’t pushing product on people. His goals are strictly to increase savings and help participants to build an appropriate asset-allocation strategy.

PA: If you were to speak to a qualified plan sponsor prospect today, what one question would you ask them to initiate the opportunity?

Sampson: This is something I actually do in our intro presentation. After I show them what the basic characteristics of a “successful’ plan are, I ask them the question, “How successful is your plan?’ This of course is followed by a series of questions that help them self-assess their plan, and think about aspects of their plan that they may not have known or felt were important.

Andonian: When was the last time you performed an internal review of your fiduciary procedures against definable fiduciary standards that are designed to mitigate your personal exposure to financial liability?

Leeson: Given the importance and scrutiny of fees in the retirement plan business today, I would ask them, as a fiduciary, if they knew exactly what their participants were paying for the services that they receive, what the most recent three to five year trend of this fee has been, and if they knew whether or not that fee amount was reasonable.

Noble: What is lacking with your existing plan that could be improved upon? The goal is to identify the pain.

Howell: I would ask them to tell me about the service they are receiving from their vendor and adviser and how that experience has been for them overall. I might also ask them how they measure the success of their plan.

Hudson: Do you know and understand all of the plan fees and revenue-sharing and, if so, do you feel they are appropriate?

Delaney: Are your participants going to be able to retire based on your current plan design? Do they know if they are on track?

Barry: “Are you happy/satisfied with your plan?’ Sometimes you can lead into a question that raises a red flag, giving you the opportunity to continue the discussion. Other times, you’ve just got to take the bull by the horns and ask them what’s most important to them.

Thibault: How has your plan handled the new qualified default investment alternative (QDIA) changes?

PA: What are the messages you try to get across in a first meeting with a prospect?

Noble: The message we try to get across in a first meeting with a prospect is that our knowledge, experience and credentials set us apart from almost any other adviser they may be talking to. We honestly believe we are the solution that they have been looking for.

Sampson: I focus on the process that we have built to help them manage their fiduciary risk, and educate and motivate their employees to save for retirement. Anyone can find a cheaper program with funds that have amazing historical performance, but if their employees don’t save enough, it just doesn’t matter.

Thibault: We try to illustrate that Heffernan Financial Services utilizes a planning based approach to all aspects of a clients retirement plans. We believe that the more you plan, the more you establish process and procedures, the better job you can do for your clients. We assist clients in establishing prudent best practices and are constantly striving to improve our services and the services we offer.

Andonian: I truly believe there are a select group of advisers that can deliver a similar model, ethics, pricing, and impact that I deliver and, if the prospect already has engaged this type of adviser or has him/her waiting in the wings, then it solely comes down to what I believe is my one true differential: a communication style that truly resonates with both investment committee members and plan participants. If that one factor is enough to break the so-called “tie’ to justify our engagement, then so be it. If not, that’s OK too.

Leeson: I think that the most misunderstood responsibility that plan sponsors face is their responsibility as a fiduciary and all that it involves. When I first meet with prospects, I make sure that they understand the enormous responsibility that being a fiduciary entails and how to reduce this fiduciary risk. Our process is measurable and it ensures that they are doing everything that they can to fulfill their duties as a fiduciary for the betterment of the plan and its participants.

Hudson: Overseeing a retirement plan is a full-time responsibility that requires many skills to appropriately manage investments, legal matters, plan documents, plan providers, retirement plan market knowledge. Many companies choose to outsource that responsibility.

Howell: We want prospects to understand that our goal is to help their employees achieve retirement success, and that an essential component is educating employees about the importance of proper planning for income replacement in retirement.

Delaney: The most important message is that we will take care of them. If there is a problem with their plan we will let them know and show them a path they can take to fix it. We try to be realistic in helping them build a solid relationship with their vendor. We have rarely seen a circumstance to be so wrong with a vendor that it is not fixable. Vendors want the clients to be happy and vice versa.

PA: What has been your biggest obstacle?

Sampson: Helping people to understand “what they don’t know that they don’t know.” Most companies don’t fully understand their true responsibilities when sponsoring a plan, and many employees don’t realize what it will take to actually retire. I think most folks have good intentions but the hard part is getting them to take action.

Delaney: The largest obstacle has been growing the business to a critical mass where I feel I could spend more time developing programs that help participants. The other obstacle is helping participants overcome market fears.

Howell: Our biggest obstacle, interestingly enough, was many years ago when we first decided to make retirement planning the focus of our practice. We learned quickly that you needed to have a well-defined, comprehensive process to be effective in this business. So, we began developing and refining our process and now that we have that process in place, we realize how much effort it takes to develop and maintain it. That’s a big reason why we believe plan sponsors should look to hire advisers that have made retirement plans a focus and not just something they dabble in—to be a good financial adviser in the benefits arena, you really need to know the business.

Andonian: Early on, the biggest obstacle was cash flow (after depleting whatever assets I had at the time) to cover the bills as I built the practice, but then I found an investor who bought into both myself and my model, and I was able to keep the doors open long enough to create some stability.

Thibault: Our biggest obstacle is getting prospective plan sponsors to take the time to fully understand the nuances of their retirement plan, the importance of full fee disclosure, proper ways to measure a plan’s success, and the importance of an effective employee communication program.

Barry: Educating clients during a down market! Trying to get people to understand the ups and downs is not always an easy task. Trying to get people that have just a little bit of money to invest be braced for a down day, watching their investment dwindle and telling them to ride it out, is not always easy. It’s always great to see someone three enrollment meetings later and have them come up to you and say, “Hey, I waited it out and I’m glad.”

Storch: Making new prospects understand and appreciate our value. Much of what we do can be rather intangible—taking the phone call from a client late at night, helping clients prepare for a board meeting, speaking with an unhappy employee. These things don’t necessary fall into quantifiable categories; however, once our clients have experienced our “service,’ they are convinced. Getting some of this across before a prospect has worked with us can be a challenge.

Hudson: Time.

Noble: Managing people is definitely my biggest obstacle, but having an assistant that is extremely loyal and more like a business partner makes that obstacle workable.

PA: How do you continue to grow your business and maintain the high service standards that have made you successful?

Sampson: My goal has been to create a repeatable system for the various aspects or our business, and leveraging resources has been a key to achieving that goal. I have added in-house support staff, for both service and investment education, and am currently looking to add a new sales consultant. I also use a number of industry resources for items that range from appointment setting, due diligence and investment monitoring to practice management and coaching. I guess it goes back to the old saying of working smarter, not harder.

Andonian: Controlled growth. I have three or four clients that I brought on eSarly in the development of the business that do not meet the margin requirements but are still good people. As I bring on new plans that meet my margin requirement I will help some existing clients find “new” advisers more in line with their budgetary needs. Secondly, is to only bring on clients that fit into the process. imilar to a conveyer belt of best practices, I can place one after the other on the belt as long as I do not overload production or let quality drop off.

Leeson: We only take on new plans when there is sufficient capacity to service them properly. When a new client comes on board, there is a lot of initial work that needs to be done. Depending on their needs, this work could take several weeks to a couple of months. We set a very high service standard and we will only grow our business as long as that service standard remains.

Noble: In order to grow a business and maintain the high service standard, we invest heavily in infrastructure and talent. Being an independent firm, we are not told how many support people we can have and what to pay them. I understand the risk of building a business that requires a significant personal investment in people. I believe this is what differentiates us from most other practices. Our overhead may be high, but our revenue justifies the investment and now we have the infrastructure to continue to grow.

Storch: Strong service tends to breed increased growth. If we do right by our clients day in and day out, that eventually comes back to us in terms of new business. Part of keeping the services standards high is making sure we are appropriately staffed. Our internal metric seems to be for every $350,000 of revenue, we typically need an additional full-time employee. The key is that we begin the hiring process and get that person up to speed early so that they we don’t get swamped.

Delaney: Always putting what is correct first. As your staff grows, the message should come through: Do what is right.

Barry: Don’t we all wish every client would pick up the phone, call a friend and say, “Hey, I’ve got the best retirement plan adviser around. You’ve got to make time to sit with him and hear how he can help you too.” It happens, but not as often as we all would like. We use a few different methods: referrals, stop by similar businesses and say hello, let them know we understand their model, and so on. When people see you they’ll make more time for you than starting with a phone call. Fortunately it works for us. I learned a long time ago quality is far better than quantity. We’re happy now and still have some room for growth, but when we feel we’ve met our limit, we’ll stop. Service is what keeps the client. And keeps them happy.

PA: What about this business are you most passionate about?

Howell: I am most passionate about helping employees prepare for retirement. All too often, we meet with people and find out that they really don’t have a clear understanding of how much they need before they can retire and, worse yet, that they haven’t set a retirement goal. By taking the time to help employees gain a better understanding of what they need to do today, we can help increase the likelihood that they’ll be better prepared for retirement. That is very rewarding to us.

Thibault: We are most passionate about working with plan sponsors to help them maximize their retirement plan benefit offering while fully understanding legislative requirements and all fees associated with their plan. We help plan sponsors understand their fiduciary responsibilities, and develop fiduciary best practices while implementing an effective employee education program.

Leeson: The thing that really gets me excited about doing what I do and is the greatest sense of satisfaction for me is when participants begin to understand the process of investing over time. You see the light bulbs go on and you can see them saying to themselves, “Now I understand it!”

Hudson: Ability to help people—whether it is talking to a participant and helping them better a plan for retirement or advising a plan sponsor on how best to maximize the plan for the participants while reducing potential liability.

Sampson: That’s easy—helping people. When you know that you’ve gotten through to someone and given him or her the ideas that they can use to change their life, and give them the confidence that they can actually retire with dignity, it’s a great feeling. And if I can create a comfortable lifestyle for my family in the process, well, I consider myself pretty lucky.

Storch: The members of our team tend to get excited by two things—employee education and technical challenges. On the educational front, everyone enjoys and feels rewarded by helping people plan for and achieve successful retirements. The interaction with employees is one of the best parts of the job. However, our team also seems to really enjoy the intellectual challenge of understanding and applying new regulations as well as brainstorming how to handle strange or unusual questions from our clients.

Delaney: You get to see a result, whether it is through increased participation or larger account balances. It is a job where you are really rewarded for your work by the appreciation of plan sponsor and participants.

Andonian: At the end of a three to four hour quarterly onsite visit and having spent 20 minutes or so in one-on-one sessions with plan participants and then sending out an email to the plan trustees recapping the action that I was able to get each participant to take (i.e. increase their deferral rate, reallocate), I can take a breath and realize that I have somehow increased their comfort zone with the plan while impacting their chances of those participant’s ability to retire with dignity. Not a bad days work.

Noble: I am passionate about learning everything I can about this business, then sharing it with others: employees, employers, colleagues and fellow workers.

Barry: Educating my clients on the market—what to do with their money. I truly love the feeling of helping others. It’s great to sit down with a couple that have worked hard for their money and show them how to invest for the future. What’s an even greater high is to sit in a room of employees whose income can range from a factory worker to executive. To take that person and teach them how to invest towards retirement, and then show them by slowly bumping up their investment they can help their retirement grow. When you have a plan that has grown over the years and you see in the audience those factory workers you sat down with three years ago talking proudly about how they have saved towards their retirement, you know you’ve done something right.

PA: Where are the biggest opportunities for business expansion in the future?

Storch: The 403(b) market looks interesting right now. The new regulations, as well as the lack of competition in the nonprofit area, make it look attractive. Individual money management fed by rollovers from qualified plans also looks intriguing. However, it would appear that many advisers struggle with developing a model that works the way they had anticipated.

Leeson: We are completely transparent with our plan sponsors. They know what our fees are, they know what their participants are paying, and they know what their recordkeeper is receiving in compensation. Our success has been in finding plans where this isn’t currently the case.

Noble: Our biggest opportunities for business expansion include building a suite of services for our human resource clients. We now offer expertise in retirement plans, health and welfare, retail and rollover assistance, and executive insurance and estate planning. Our goal is to duplicate this model in multiple cities in Texas and surrounding states.

Andonian: ERISA-based 403(b) plans need the support, which my model delivers, but due to the lack of information on 5500 forms it is difficult to uncover these opportunities.

Delaney: Wealth management, and tying that to the growth of the plans.

Sampson: The PPA clears the way for us to implement some great programs, like auto-features, Roth, etcetera. I think we have a tremendous opportunity to implement these programs, and use them as the impetus for increasing education and savings. There are still many plan sponsors that employ advisers that don’t specialize in our business, or no adviser at all. Those folks are probably not getting the (PPA) message, and we can really help them to improve their situation, and give their employees a fighting chance to actually retire. And once they get there, it’s critical that we have a quality rollover solution for them, which helps them transition to the income phase, and helps us maintain the assets we’ve worked so hard to increase.

Thibault: At this moment there is a sizable opportunity in the nonprofit arena, but be careful. This is an area that can be very slow to move on the sponsor side and even harder to transfer on the vendor side. You need to know what you are getting into and make sure that the client does too.

*Retirement Plan Adviser of the Year finalists: Gregg Andonian, Baystate Fiduciary Advisors, Inc., a Member Firm of NRP, Milford, MA; John Barry, JMB Wealth Management/National Planning Corporation, Torrance, CA; John Leeson, Investment Research & Advisory Group, Inc.. Atlanta, GA; Tom Noble, Noble Retirement Group, a Member Firm of NRP in Sugar Land, TX; and James Sampson, Telamon Insurance & Financial Network, Newton, MA.

Retirement Plan Adviser Team of the Year finalists were represented by: Barbara Delaney,FFoA, a Member Firm of NRP in Pearl River, NY; Brett Howell, The Howell & Sharp Group at Merrill Lynch, Grand Rapids, MI; Mike Hudson, CAPTRUST Financial Advisors, Raleigh, NC; Blake Thibault, Heffernan Financial Services, a Member Firm of NRP, San Francisco, CA; and Kendall Storch, Longfellow Benefits, a Member Firm of NRP, Boston, MA.