Is It Time to Let Go?
Art by Taylor Dow
Business development is integrally tied to a firm’s success. Yet, any adviser practice will encounter hurdles as it grows—one being how to manage the unprofitable client relationship. It may be be a client you misjudged from the start, or one that fell on hard times quickly—e.g., the business could be struggling from effects of the pandemic or inflation or other recent economic changes. The adviser then finds she is expending more, relatively speaking, than what the client is giving back.
To avoid the never productive client relationship, retirement plan advisers need to be able to recognize which prospects have potential to be profitable for their firm. According to Shauna Mace, head of practice management for SEI in Philadelphia, the adviser needs to assess, upfront, whether a client can help his firm grow, but also whether it is a client he would like to grow with.
To increase the likelihood that a client will be profitable, the adviser needs to clarify for the prospect, and herself, what services she can provide. “Advisers want to start the relationship in a place of being profitable,” says Mace. “They can only achieve some control of that when they define what they’re going to do for the client and at what cost.”
Mace rejects the idea that advisory firms are a one-stop shop for meeting all possible client needs. Rather, she touches on the value of a firm choosing particular services to specialize in. Advisers should think about what services—e.g., retirement planning, tax planning, investment management, etc.—they can add in order to grow with their specific clients and which are most relevant in each individual situation, she says. “Think about who that ideal client is that you want to grow with and really support, and how you can add the most relevant [services] to them,” some examples being stock option planning for high-net worth clients or Social Security and Medicare education for Baby Boomers clients, she says. These can be provided by the advisory firm itself, or through an adviser partner who offers a specific service.
The Price Is Right
Advisers put substantial resources into serving their clients, which anticipates receiving a fair fee, sources say.
Some retirement plan advisers offer private financial planning services to plan participants for a certain cost per individual, says Shawn O’Brien, associate director for Cerulli’s retirement team in Boston. In these cases, the financial planning fee is usually lower than what the adviser would charge if the participants were not in a defined contribution plan that he advises, O’Brien says.
“However, plan advisers will not typically manage the DC assets for individuals in the plan,” he continues. “If they want to engage in an AUM [asset-under-management]-based relationship with a participant, they will usually recommend that the participant roll those assets into an individual retirement account, in which case the person becomes a wealth management/financial planning client,” O’Brien says.
Before working with a client, the adviser should determine the scope of the services the business expects to receive. Will it want a full-service offering or just services á la carte?
It might seem obvious, but pricing yourself appropriately is key to achieving profitability, Mace says. An adviser can tout a holistic financial wellness program boasting a full menu of features and then underprice himself—maybe to get the business. But in doing so, she says, he can unintentionally create a cycle that perpetuates undervalued work.
It is best to lay out your intentions at the start, Mace says. This includes stating your prices, fees and services accurately. “Too often I see advisers overdeliver, but they don’t have enough confidence to price themselves higher. You have to figure out how to have that conversation and showcase your value upfront.”
Benchmarking your practice is another simple step to ensure its success. Managing client referrals, for example, is crucial to growing an advisory practice. The 2020 PLANADVISER Practice Benchmarking Survey found that receiving referrals from existing clients is increasingly valued: Client retention is advisers’ third highest concern, having grown to 32% in 2020 from 18% in 2019.
Cutting Your Losses
There comes a point where advisers may have to break up with a client, and that is OK, says Mace, as long as they have a plan. This could include referring the client out to a self-directed platform or to another adviser, whether that person is a professional on your team or works at another advisory firm.
If an adviser knows he cannot provide a service for what a particular client would consider a fair price, then he needs to have a game plan to communicate that to the client, she says. “Being prepared to have that conversation, having a plan for it and having people you can refer the client to is a really powerful way to take action when it’s just not a good fit.”
Historically, small plans have yielded unprofitable results to advisers, but that has been changing in recent years. According to the 2021 PLANADVISER Small-Plan Services Survey, total plan assets for 401(k), 457a and 403(b) small plans have steadily increased since 2013, and the plans achieved some of their highest asset figures last year.
Chad Parks, founder and CEO of Ubiquity Retirement and Savings in San Francisco, who services small-plan clients exclusively, disputes the stigma against these plans. “I’d encourage advisers to see how they can be successful in the small-plan market,” he says. “There’s a huge market opportunity, so figure out a way to get into that market and serve it well.”
Setting realistic expectations and then managing those sensibly is key to profitability in the small-plan market. One way to control costs is leveraging technology. Rather than scheduling on-site meetings multiple times a year—which can be costly for both the adviser and client—providing one or two virtual meetings is ample, Parks says.
Not only do more businesses accept virtual enrollment meetings or educational webinars because of the COVID-19 pandemic, but small businesses will likely understand the cost barrier to a high-touch approach and accept the more economical methods. Virtual meetings allows advisers to still explain all the basics and intricacies of the plan and take employee questions in real time, but without the expense of visiting on-site, Parks says.
To make small plans more lucrative from the start, advisers can charge a high flat fee early on to generate adequate revenue, Parks says. “That’s perfectly acceptable, and, believe it or not, small businesses are willing to pay that.” And the better the job the adviser does, it will benefit him in the long run.