Picking a Winner

“At all costs I would avoid 1/1 [when converting a plan],” says Steff Chalk, President of CHALK 401(k) Advisory Board in Cincinnati, Ohio. “You are vying for a limited number of resources at a time when the vendor is performing day-to-day and year-end functions and quarter-end functions.” In fact, one month later can make all the difference, Chalk says.

For many years, it seemed January 1 was the ideal date on which to complete a plan conversion (for those plans with a plan year ending December 31); the timing allowed for the outgoing recordkeeper to complete the year-end paperwork, while the incoming plan provider could start fresh with the new year’s work. 

However, that does not seem to be the experience for many advisers. “We don’t see clients demanding it at all,” comments Darrell Alford of Alford-Jungers Financial & Insurance Services, Inc., a member firm of National Retirement Partners in San Diego, of the January 1 conversion date. If they do, he says, that decision needs to be made in June. Although other advisers do not concur, Chalk says that 90% of the sponsors he comes across have January 1 in their minds, unless they have waited until year-end.  

Looking at the CalendarDo plan sponsors all want January 1 as their implementation date? According to David Liebrock, Executive Vice President, Fidelity Investments Institutional Services, the volume of sales and implementation activity is definitely higher in December and January. However, timing is not as critical as it has been in the past; for example, firms can implement a plan in the middle of the year and still complete the 5500, he explains. Before 2004, about 25% of the annual conversions done by Principal Financial Group were completed on January 1. However, since then, the conversions are flattening and, over the past two years, that number has dropped to between 15% and 20%, explains Jason Neal, Client Relations Officer, Retirement and Investor Services at the Principal Financial Group. 

January 1 does not always make sense for the plan sponsor, comments Neal. When plan sponsors realize it is a three-month planning commitment and they look at their responsibilities in the conversion, such as gathering employee records and payroll data, and realize they have to do that along with all their other year-end functions, they might not be so interested in rushing to it. Before beginning, advisers should ask plan sponsors: “What are your expectations? Do you have time to devote to this?” 

Between 25% and 30% of his clients have a specific date in mind, adviser Neil Netoskie, Senior Vice President and Manager at Compass Retirement Solutions in Houston, Texas, says. Not surprisingly, those usually are the clients more dedicated to the conversion process. “Right now, I have a bunch wanting January 1,” Netoskie comments. “For the most part, I try to talk them out of it.”  

Avoiding January 1 also helps the adviser, Netoskie says. After all, if something does not go according to plan, it could reflect badly on the adviser and his team, and that is never a good way to start off a relationship. The last thing an adviser wants is to miss a conversion date, Chalk agrees. Then, the plan sponsor asks ’What else that I thought I was going to get am I not going to get,’ he says. 

When it comes to picking a date, adviser Andrew Prevost, President of Meltzer Group Retirement Plan Services Division in Bethesda, Maryland, targets many plan conversions for December 1, which allows the new recordkeeper to complete the plan’s prior-year forms.  

Despite the attractiveness of converting with the new year, at least from the standpoint of reporting clarity, Chalk has found that many sponsors understand the complications of a year-end conversion. When he wants to discuss an alternative date, “it’s not a tough sale,’ he says. An adviser’s mantra to the client should be, “I will make sure your best interests are carried out,” says Chalk.
 

Timing the Process
One key aspect in whether a plan can convert on a certain date is the timeline. When scheduling plans, advisers should know what their firm’s capacity breaking points are, if they don’t already, Chalk says, as well as what timelines are needed. If an adviser lets a sponsor dictate timelines and acquiesces to plan sponsor demands, it is likely that something is going to explode, he advises. 

Netoskie follows a 45- to 60-day conversion timeline, unless it is a complicated plan (for example, multiple employee locations or nontraditional investment options), which can take up to 90 days, he explains. Prevost says that his firm tries to build in between 30 and 40 days for the conversion. However, while Prevost says he might have a general timeline, it is important to be flexible. The plan sponsor might get caught up in other priorities, or the times when the adviser’s firm can meet with employees may need to be revised.  

In Liebrock’s opinion, the plan sponsor involvement is vital to the time frame in getting a plan up and running. “It depends on whether there is a centralized or decentralized group at the plan sponsor level,” he comments.  

According to Lisa Jungers of Alford-Jungers Financial & Insurance Services, Inc., the firm has never had to give up, or back off, a scheduled conversion date, but she admits they have run into plan sponsors who drag their feet through the process, only to still want to convert on the original date. The conversion timing commitments made in requests for proposals are only good for a certain amount of time, she says—generally about 90 days. For situations where a client drags his feet, she suggests hinting that the quoted fee schedule might expire.  

Provider Capacity
How do advisers and providers deal with the clients who mandate a specific date? “One client wanted to transition at a certain date, so we rushed through it,” Prevost says. However, vendors generally only allow a certain number of transitions per month. Further complicating the situation can be Sarbanes-Oxley (SOX), which requires a plan sponsor to notify plan participants at least 30 days prior to a plan’s blackout period and, since Sarbanes-Oxley notification requires coordinated communication based on facts collected by both service providers, additional timing will be necessary outside of the already communicated 30 days, Neal says. Therefore, he explains, when a plan sponsor tries to rush a conversion, or change dates or expectations mid-conversion, the rules surrounding Sarbanes-Oxley might apply, often affecting just how much a conversion can be rushed. 

Therefore, Neal says, if a client pushes for a January 1 conversion, Principal asks whether it is a capacity issue or whether there are legal concerns. If it is a capacity issue, the provider examines whether the educational and enrollment meetings will get done, and tells the adviser and plan sponsor what the firm will be able to accommodate at a certain date. However, if there are legal concerns, where the plan might be affected by SOX or fiduciary obligations, Neal says, the recordkeeping firm might decide to move away from the business. 

Fidelity does not have a specific limit to the number of plans it will take at a given time, Liebrock explains. However, the firm does do planning and capacity examinations. In determining whether a plan can be converted at a given time, it is important to look at the quality of the plan and the status of the plan’s documents. “We will accommodate people provided that we have the capacity to get it done,” he comments. 

Another component to consider is the types of services the plan will be implementing upon conversion. If the plan sponsor is keeping everything the same, says Liebrock, then it is a relatively easy move. However, with the increase in automatic enrollment and automatic deferral increases, many plan implementations have become more complicated as plan sponsors decide when they want to “turn on” those services, he explains. 

Adviser Role
“I don’t see a lot of really good advisers getting seriously involved in the conversion process,” Chalk says; instead, they have someone in the office that specializes in conversions. Generally, advisers are quarterbacking the process: Once a week, the adviser knows what the status is, but he is actively managing the exceptions rather than the general process, Chalk explains. For example, the Meltzer Group has somebody dedicated solely to transitions who is responsible for setting timelines and plan review guidelines, Prevost explains.  

When converting many plans at once, if it appears that a logjam might occur, Netoskie admits it takes a little more time for him and his staff to get things done. Although he might not be out selling and instead is focusing on plan service, he says that tradeoff is well worth it. If something is going to suffer, he comments, he would rather it be the loss of a potential plan than the risk of losing a current client. 

Managing client expectations throughout the process is a vital role for the adviser, providers concur. Neal says it is up to the advisers to decide how involved they want to be. Since 98% of their plan conversions come to them through a financial adviser, Principal wants to work with advisers as partners.  

“We are looking for the adviser to be a communication vehicle to the plan sponsor,” comments Liebrock. He says the adviser’s expertise is in his communication to the plan sponsor about what is going to happen, and how that will happen, and then in managing his client’s expectations.  

The plan sponsor has to keep in mind that this is a long-term decision, Liebrock continues. Although the sponsor might have a set date in mind, if that date cannot be met for good reason, the adviser can help the sponsor consider the larger picture. “That is where the adviser can step in and add value,” he explains. 

Provider Relationships
When interacting with providers, the type of firm can make a difference to advisers, Prevost says; although some providers who generally go directly to the plan sponsor might have less leeway for the adviser, platforms that are mainly adviser-friendly have much more flexible timelines.  

Another component of provider flexibility is how much business an adviser has with a specific vendor, he continues. One benefit to working routinely with the same provider is that providers who regularly get business from an adviser can offer increased service to that adviser; Liebrock says that the average adviser brings three to five plans per year to Fidelity, and each adviser is assigned the same project manager for all his plans.  

Likewise, at Principal, retirement advisers have the opportunity to achieve platinum-status levels within the firm, once they bring regular plans in for conversion. When an adviser achieves that level, he is assigned one corporate relationship manager, whom the adviser can call to discuss possible upcoming conversions. This allows him to know what types of resources will be available, or know what timelines he may be looking at. With advance notice, Neal explains, Principal can align even more resources, such as those to handle educational meetings and a dedicated conversion manager and relationship manager.