In Practice February 26, 2007

Building Relationships is Vital to a Successful Business

Are you a persuader or a partner?
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If your client perceives you as someone who is trying to sell something, a persuader, you will be met with resistance but if your client regards you a partner, and believes you are trying to problem-solve with him, he will want to work with you.

That was the guidance of Jim Cathcart, Founder and CEO of Cathcart Institute and author of the bestselling book “Relationship Selling” in the opening session of the 401(k) SUMMIT in San Diego, CA yesterday, emphasizing the need to develop relationships as part of a business model. However, the relationship has to be integrated in a sales context, Cathcart says. “If you build a relationship with someone and don’t make a sale, it’s a social relationship; if you make a sale but no relationship – how hard is your second call?”

The people you sell to may not remember the people, the processes or the products presented, but they will remember how they felt. Because of this, Cathcart said, it is important to ensure you are not seen as a persuader, but rather as a partner.

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“The purpose of what you do is to make life better for people,” he said, something that needs relationships and trust to make that work. Advisers are selling security and stable retirements through their products, he said, and you must frame these products as such to get the right message to the client.

According to Cathcart, when he was beginning in sales, his mentor said that the goal of selling is to make a difference – “if you cant make a difference, you shouldn’t make a sale,” something he says he took with him and has used as a guideline ever since. “Business ought to be a profitable act of friendship,” he said, because trust will develop, and when trust is high the sale is not about persuasion. The trust factor is very important in selling. Trust is power, Cathcart said. It is not directly accessible to us, but there are things we can do to foster the development of trust. One way to do this is to stop upselling and start upservicing; stop trying to increase the size of the transaction (revenue), focus on increasing the client or customer’s satisfaction, he said, because in doing that, the upselling will follow.

To be successful, you must measure your progress, he said, because things that are measured tend to improve. Without measurement, progress is questionable and success is uncertain. Therefore, taking that into consideration in a business building sense, in order to be the person you want to become or have the business you want, you have to visualize that, Cathcart said; “every day ask yourself the following question: How would the person I’d like to be do the work I am about to do?”
In Practice February 25, 2007

Focus on Plan Fees and Revenue Sharing to Continue (Part 2)

Advisers should be proactive on helping their clients understand their plan fees in the coming year.
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Last week, we reported that Fred Reish, of Reish, Luftman, Reicher, & Cohen, said that retirement plan advisers can anticipate a continued focus on fee transparency in the coming months (see Focus on Plan Fees and Revenue Sharing to Continue) as a result of increased attention to sees since a series of lawsuits against plan sponsors were filed last year.

Share Class Questions

Plan fiduciaries need to know what share classes are being used in the plan, Reish said, speaking on PLANSPONSOR’s “Plugged In” Web cast, suggesting fiduciaries should be able to justify why a particular share class was picked and what that share is doing for the plan. “How much is the share costing you and as plan assets rose, did the shares change,” he said, emphasizing the need for a continued focus on such matters.

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One interesting thing being raised in some of the arguments, like the latest one against Fidelity (See Fidelity Tagged in Another 401(k) Fee Suit ), said Mark Davis, an RIA and partner at Kravitz Davis Sansone, is that there are questions about fund fees among direct fund distributors. For example, “there is no cheaper share class of the Magellan Fund,” he said, because there is only one share class. This raises questions about how money is traveling, and what revenue sharing is occurring, between different entities within privately held companies, he said.

Action from the Department of Labor

Recent news from the DoL says that they are seeking more disclosure from retirement plans, the panel said. Last year, the Department proposed new rules, which are not final yet (still pending DoL’s receipt/review/response to public comments), but are slated to take effect for 2008 plan-year reports due in 2009.

If plan assets are used to pay fees of service providers, the prohibited transaction exemption will only be available upon full fee disclosure to the plan sponsor or other hiring fiduciary. Form 5500 will also change, requiring detailed disclosure of fees paid to service providers, particularly indirect fees (see More Than Meets the Eye). Among other things, it is proposing that the report identify all persons receiving more than $5,000 in total compensation from a plan, either directly or indirectly, as well as any fiduciaries and other specified service providers who receive more than $1,000 in indirect compensation (a group which would often include financial advisers).

In fact, the proposed rule states: “[F]inders’ fees, placement fees, commissions on investment products, transaction-based commissions, sub-transfer agency fees, shareholder serving fees, 12b-1 fees, soft-dollar payments, and float income. Also, brokerage commissions or fees (regardless of whether the broker is granted discretion) are reportable whether or not they are capitalized as investment costs.”

Davis said that the ERISA Advisory Council in 2004 presented the Department of Labor with some guidelines for how plan sponsors should be running their plans:

  • Plan sponsors should avoid entering transactions with vendors who refuse to disclose the amount and sources of all fees and compensation received in connection with plan.
  • Plan sponsors should require plan providers to provide a detailed written analysis of all fees and compensation (whether directly or indirectly) to be received for its services to the plan prior to retention.
  • Plan sponsors should obtain all information on fees and expenses as well as revenue sharing arrangements with each investment option. Plan sponsors should also determine the availability of other mutual funds or share classes within a mutual fund with lower revenue sharing arrangements prior to selecting an investment option.
  • Plan sponsors should require vendors to provide annual written statements with respect to all compensation, both direct and indirect, received by the provider in connection its services to the plan.
  • Plan sponsors need to be aware that with asset-based fees, fees can grow just as the size of the asset pool grows, regardless of whether any additional services are provided by the vendor, and as a result, asset-based fees should be monitored periodically.
  • Plan sponsors should calculate the total plan costs annually.

These represent best practices, Davis said, for plan fiduciaries to follow in administering their plans.

What Lies Ahead

“I think that by end of year, we will get three pieces of guidance from the (DoL) on fees,” Reish predicted.

Moving forward, Reish said the adviser can play a very important role. “Plan sponsors are getting data [about their plan fees] and that is an opportunity for advisers to help the plan sponsor understand them,’ he said, suggesting that advisers should “roll up their sleeves and discuss fees with [their clients.’

When looking at breakpoints for fees, Davis suggested some breaks can come with as little as three to five million dollars in assets, depending on the number of lives in the plan. There will certainly be breakpoints at $10 million, he commented, but plans do need to make sure they pay attention as the plan grows because sometimes a plan with as much as a few hundred dollars in assets can be paying the same fees and be invested in the same share class as when it was only a $20 million plan.

When working with clients, Davis said that ideally a fee review will happen annually, but “you can probably do it every couple of years and be fine.” Reish said that, assuming there are no significant plan changes, once every three years is probably adequate. However, when that review is done, Reish said it should be a robust comparison of plan fees to other like plans with similar demographics.

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