How to Optimize Connections

The purview of plan advisers used to remain squarely within the realm of helping the plan sponsor design a 401(k) plan that met its needs and select appropriate funds to fill out that plan’s menu.

In recent years, however, an increased industry emphasis on financial wellness has expanded that role to also include the delivery of education, advice and other services directly to participants. More than 60% of employers now feel extreme responsibility for their employees’ financial wellness, up from just 13% in 2013, according to Bank of America’s 2020 Workplace Benefits Report. The report also found that more than half of companies now offer financial wellness programs—over twice as many as did four years ago.

That represents an opportunity for advisers.

“It comes down to the individual business model of the plan adviser as to how much he wants to dial participant services up or down,” says Kevin Morris, vice president and chief marketing officer for retirement and income solutions at Principal Financial Group in Des Moines, Iowa. “Many of the advisers’ business models are built on not only bringing the employer solution but also working with individual participants. And, as advisers continue to build their business, they may want to expand those services further.”

Advisers say the focus on participants reflects their desire to improve both plan and individual outcomes.

“Individuals have more money in their accounts now,” Morris says. “This is the 401(k) generation, and many folks don’t have a pension plan. This is the biggest asset they have, and they need help managing it.”

They also want that help, especially after COVID-19 highlighted the precarious financial position in which so many Americans live. More than 60% of plan participants surveyed for Charles Schwab’s “2021 401(k) Participant Study” said they believe their current financial situation warrants advice, up from 50% last year.

New Revenue Streams

The shift toward advice has also created a growing revenue stream that has helped plan advisers offset the fee compression they have experienced on the plan-design and fund-selection sides of the business. Sources advise, however, that it also requires careful conversations with the sponsor to level-set expectations about how and when the adviser might cross-sell services to participants.

When advisers do a good job of building their relationships with participants through in-plan services, they do not need to engage in hard-sell tactics, observes Jason Chepenik, senior vice president for retirement and wealth with OneDigital Retirement Services in Orlando, Florida. Establishing one’s brand as a trusted source of financial services is a sales generator in and of itself, he says.

“We’re not hard selling,” Chepenik says. “We’re just making available the fact that we’re here as consultants, and we can help you with your 401(k) plan. If there are things we do outside of the plan, that’s a separate agreement between us and the client directly.

“It could be them, or it could be their family member or their kids or someone else they know that needs assistance,” he continues. “You’re not really harvesting the plan, you’re just working with the participants and proving your value.”

FinDec takes a similar approach, concentrating on providing the best advice to clients and allowing sales to happen organically based on that good service, says Tolen Teigen, the firm’s chief investment officer (CIO), in Stockton, California.

Still, working with participants via their 401(k) plan has been a boon to FinDec’s individual client business.

“Most of the time, that’s where people are going to get their exposure [to a financial services firm],” Teigen says. “They’re not getting advice from someone else. When you have most of your money with one company, and you see people from that company coming through the door and offering advice, you get to know them. It’s really a natural handoff from the 401(k) conversation to personal assets.”

Delivering Value

When financial wellness creates better individual outcomes, that reinforces the value of the plan with the plan sponsor as well.

“At committee meetings, we always tell a personal story about how we helped an individual in the plan,” Chepenik says. “The committees enjoy hearing about it, and that helps them see our impact, rather than just looking at statistics about how money is rolling in or out of the plan.”

Introducing a new financial wellness program or advice offerings to a plan is easier when a plan adviser already has a good relationship with the plan sponsor, says Jean Duffy, senior vice president and financial adviser at CAPTRUST, also in Des Moines.

“When that level of trust is already there, plan sponsors will understand that I’m acting in their best interest and in the participants’ best interest,” she says. “They know, when I bring something to the table, I’m doing it for the good of both the plan participant and the sponsor.”

Such relationships take more time with new clients, and, Duffy says, it is helpful to emphasize the plan adviser’s role as a fiduciary, whether he is giving advice to the plan sponsor or to the participants. That could mean, for example, that even if the sponsor’s goal is to have separating participants remain in the plan, she might advise them to roll their money over, if that was in their best interest. Or vice versa.

“It means a lot to plan sponsors that we are independent and objective,” she adds.

If plan participants approach Duffy about purchasing additional services from CAPTRUST, she will let them know what types of services the firm offers and how much those might cost. “I’ll explain that ‘we are one option, but I want you to talk to other people, as well,’” she says.

Gene Silverman, head of retirement plan services with UBS Wealth Management USA in Montclair, New Jersey, says his firm takes on fiduciary status when providing investment advisory services to plan sponsors.

“It’s all about the plan’s best interest and the participants’ best interest,” he says. “We don’t solicit participants in plans. We provide education, and some employees may want to have individual conversations because we’ve established trust. If we do a good job in the course of providing financial education, participants may engage us for additional support.”

The Role of Recordkeepers

In cases where recordkeepers also offer participant advice or planning services, it is even more important for all parties to work together to make sure they offer comprehensive benefits in a way that makes the most sense for the participant.

“You have to figure out where the plan sponsor sits, where the adviser sits, and how much the recordkeeper can help,” Morris says. “Some employers don’t want anyone selling anything to the individuals in their plan, but others see value in the service that helps their participants. That feels different than if you’re just selling to them, but it’s a fine line in this industry.”

When it comes to plan participant relationships with advisers, Joe Smolen, senior vice president, core market, at Empower Retirement in Parker, Colorado, says he typically sees three models: 1) The adviser has the resources to deliver advice and other services at scale and takes the lead in doing so; 2) The adviser does not offer such services, or does not offer them at scale, and relies on the recordkeeper to provide them; and 3) The adviser uses a hybrid model that involves a ­partnership between himself and the recordkeeper.

Sources say, for a successful relationship with both the plan sponsor and participants, plan advisers need to clearly set expectations upfront and reopen the dialogue if they believe the current model should change. Often plan sponsors will ask in a request for proposals (RFP) whether an adviser will cross-sell services, giving all parties an opportunity to get on the same page from the start.

“The main thing is being transparent about the services you’re offering to plan sponsors at the employer and the employee level,” Morris says. “The plan sponsors and the adviser need to be aligned on exactly what those services will be.”

Advisers who neglect to do that risk losing the business altogether. Teigen says some clients have brought FinDec in after severing ties with a previous adviser who cross-sold too aggressively.

“They were being disruptive or over-stepping their reasons for being there,” he says. “It was obvious they were just trying to cross-sell and get as much as they could from the people in the plan.”

Introducing New Services

Both plan sponsors and plan advisers are broadening the services they want offered to participants within the plan.

“They’re looking at incorporating assets of outside accounts, debt management, health savings accounts [HSAs] and, of course, defined benefit [DB] or nonqualified plans,” Smolen says. “I believe the next iteration will be wills and trusts and insurance needs. It’s an ever-expanding landscape that advisers are being asked to offer, based purely on the needs and desires of participants and sponsors.”

According to sources, additional areas where advisers might offer services include emergency savings, college funding and elder care. Which of those services are offered in-plan and which are add-on benefits that participants pay for varies significantly depending on the plan sponsor. In the cases where participants are paying, however, the adviser can typically offer a discounted price based on the scale of the plan and his relationship with the plan sponsor.

Brad Arends, CEO of intellicents in Albert Lea, Minnesota, says his firm offers a high-level financial plan for each plan participant based on the person’s age, wage and 401(k) account balance. Participants can then work with a financial planner to customize their plan further by adding inputs such as outside assets and their spouse’s financial profile. Some employers pay 100% of the cost for employees to have access to that more detailed financial plan, while others subsidize the program, which intellicents offers to employees at a discount.

“We have to work with the employer on this,” Arends says. “In effect, they’re endorsing us for advice services beyond the plan, and the vast majority of them have no issue with that, because we’re able to offer better advice to the participants.”

Different Delivery Methods

Besides various approaches to paying for advice, the way an adviser delivers such services also differs significantly from one plan sponsor to the next.

The best way to deliver services may change in the years ahead, as more employees work remotely, following the changes in workplace dynamics brought on by the coronavirus pandemic. Research by Morningstar finds that remote workers interact differently with their workplace retirement benefits and that they are more likely to opt out of the default investment plan and take more interest in managed account services.

“There’s a conversation about the variable ways you can deliver financial wellness, and it differs with the client,” Smolen says. “Some want face-to-face meetings, and some want access to counseling or advice online; others just want to digitally interface. Some want all three.”

Regardless of the delivery method, plan advisers need to have buy-in and support from their clients.

“If participants want or expect you to meet with them in person, on-site, then you need a willing employer that will allow you to do that,” Arends says. “It’s going to have to let employees take time off during work hours, either in group meetings or one-on-ones. We have some clients that will allow that, and some clients that won’t.”

‘A Solution for Everyone’

Increasingly, plan sponsors want their advisers and other providers to offer these services not only to the C-suite but to every single plan participant, and even nonparticipants who might convert if they could get their financial house in order.

“One of the first questions we get about financial wellness is whether this is just for executives or for everybody,” Arends says. “When we explain what we’re offering, it’s a lot easier for us to get an appointment with a new prospect than it is if we say, ‘I’m a better mutual fund picker.’ That’s a commodity these days.”

Duffy agrees that offering services to all participants, rather than simply providing wealth management to the top high-wage earners, is a differentiator for plan advisers.

“It’s a strength for an adviser to come in and help the plan sponsor know that he will not only help it manage risk but also help it take care of all of its employees, not just the highly compensated or high-net-worth employees,” she says. “It wants a solution for everyone.”

Art by Joe Anderson