Bright Ideas

Insights from the Retirement Plan Adviser and Adviser Team of the Year winners and finalists.

In our recent issue, PLANADVISER introduced the winners and finalists for the 2011 PLANSPONSOR Retirement Plan Adviser of the Year and Adviser Team of the Year awards (see the March-April 2011 cover story). 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 about this business are you most passionate? 

Michael Kozemchak: Helping the American workers understand their financial needs in retirement and then prepare for them

Stephen DesRochers: We actually make a difference; ok, it’s not world peace but, when we walk into a room and participants swarm around to tell us how they used our tips to save money, or how we see the plan inflows rise after a meeting, it means we helped them seriously consider their future. If an employer doesn’t care about participants’ future, and they are out there, they are not a good fit for our team. We are going to do what’s necessary to help participants face the truth and be prepared to retire with dignity. It takes a lot of effort, but it’s worth it.

John Spach: Doing it all right. I want clients to see a plan consultant as representing their interest, controlling their cost, and helping their people. It’s not about us.

C. Todd Lacey: I am the most passionate about participating in an industry that is helping tackle the monumental challenge of helping more Americans achieve a financially successful retirement. Most people are not on track to have enough money at retirement and will, therefore, have to save more, work longer, or both. The only proven way to make a meaningful, positive impact on savings rates is to provide in-person, individualized participant guidance (call it guidance or advice, it really doesn’t matter). Knowledgeable advisers need to sit with participants and help them make the necessary changes to give them a better chance of retiring one day. Contributing to this cause is, by far, the part of this business that I am most passionate about.

Phillip Steele: Having the ability to evaluate and influence the behavior of plan sponsors and participants to achieve an improved outcome at retirement is what drives me each day. Having a unique and effective approach to participant education is a big part of that passion.

Daniel Peluse: Without question, we are most passionate about educating and providing one-on-one guidance to our clients and their participants. While all of the other services we provide to our clients are extremely important to the overall plan’s success, we feel that creating a sense of comfort for the participant regarding the plan tools and features as well as their available investment options is truly the most important.

PA: What has been your biggest obstacle? 

Kozemchak: Plan sponsors or committee members that simply don’t get it or do get it but are complacent and disengaged.

Spach: Dislodging current brokers (with no expertise or value) because of existing personal relationships with key decisionmakers or owners.

James Worrell: Helping participants truly understand how important it is to focus on the long-term planning goal of retirement income and on the importance of saving today for something that often seems so far in the future.

Phil Fiore: Just getting plan sponsors to listen. In actuality, the consciousness change in the country has been great for our business. Everyone is looking now at holistic approaches to retirement and we have been preaching that for years, long before it was fashionable. Suddenly everyone wants to know what we have been doing differently. It has always been about working with all sides of the equation; protecting the fiduciaries; helping Human Resources change the retirement plan from a line item in a benefit book into a tangible savings resource; working with investment committees and finance departments to keep plan fees in line and make sure the services being provided are best in breed; and helping participants understand the value of saving and how the plan helps them achieve their goals for the future. To focus on just one area just doesn’t cut it. It may cost a bit more, but the results are worth it, and that is what it’s all about …reasonable fees for services received, not the cheapest cost. Plan sponsors are saying, “It’s not a benefit until participants understand it’s a benefit” and they are willing to take that leap now.

PA: What have been the most significant differences to your practice in the past two years? 

Spach: We’ve created a team of professionals. Process and procedure to insure we deliver what we promised. The way we price our services is another big difference

Ken Rogers: The evolution into full fee disclosure and fee-based business versus commission-based

Peluse: The most significant difference in our practice over the past two years has been the additional services we can offer now to our clients in our consulting agreement. With the help of our Corporate Services Group at MSSB, we offer services such as Fiduciary Benchmarking, Provider Searches, and Customized On-Line Education to accompany the core services of our business.

Kozemchak: The activity level and the complexity of the cases.

PA: How do you address regulatory changes with your clients? 

Kozemchak: We provide a regular legislative legal update and guide the client to engage outside counsel as appropriate.

Worrell: We translate the complexities of regulatory changes and advise our clients through the pros and cons of the various avenues presented by change. We will take the time to read through plan documents, plan regulations, and proposed regulations for clients. We will spend time speaking directly with the compliance area of our client’s third-party administrator to thoroughly grasp and discuss the issues, so we can then put it in layman’s terms for our client to help the client understand the issues and the pros/cons of a certain course.

Steele: We evaluate changes and prepare a summary regarding the relevance and impact to the client, reviewing our findings with the plan committee. We then assist the client with any necessary administrative process needed as well as any communications to plan participants as needed.

Sean Deviney: I try to give them as much advance notice as possible. One section of our Trustee review meeting material is dedicated to legislative and regulatory changes. This gives us an opportunity to discuss what’s coming and how we anticipate it will affect their plan, even if the final details are not known at the time.

Gregg Fine: Gallagher Retirement Services’ in-house legal counsel continuously monitors all regulatory bodies regarding qualified plan issues. These regulatory bodies include the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), Department of Labor (DoL), Employee Retirement Income Security Act ( ERISA), Internal Revenue Service (IRS) and State Insurance Commissions. Gallagher Retirement Services provides periodic regulatory updates, reports, and white papers to our clients. I also keep up to date regarding the most recent laws and trends via company subscriptions to industry trade publications and Websites. Gallagher Retirement Services maintains a proprietary consultant portal where we share and make available numerous industry resources, articles, reports, surveys, and benchmarking studies.

PA: Have you made any changes to how you’re compensated over the past two years? What and why? 

Kozemchak: We are nearly 100% flat fee.

Spach: Personally, no. Corporately, yes. Most proposals leaving our office state how many face-to-face committee meetings we will provide, how many education days, committee structure assistance, and an RFP. We price each service individually based on prep time, delivery, follow-up, and we add a 25% to 30% profit margin. We know if we are profitable and we do not take on (excluding 403b’s) unprofitable business.

Rogers: We have shifted to a predominantly fee-based model in an effort to serve as a plan fiduciary, and to distinguish ourselves from the competition.

Peluse: In an effort to provide more clarity to clients regarding our fees, we began the process of moving from commission-based arrangements a few years ago. We have moved to more consulting-based arrangements that can either be hard dollar or asset-based. For those that are asset-based, all fees are distributed through the ERISA budget established with the recordkeeper.

Lacey: Yes. We have moved from a hybrid commission/RIA fee model, to 100% fee-only. While the majority of our revenue used to be asset-based, it is now 90% flat dollar. We decided to make these changes because we believed that operating in an independent RIA capacity was the only way to truly demonstrate our objectivity and transparency. This model allowed us to sign on as a plan fiduciary on all of our clients’ plans. I believe that it is very difficult to truly add value as a retirement plan adviser without acknowledging fiduciary status. We also feel that asset-based fees do not accurately reflect our service model and corresponding value-add. We consider ourselves a retirement plan consulting firm, not just an investment adviser. Investment advisory services are only a small portion of what we do. As a result, an advisory fee that is tied solely to the appreciation or depreciation of the plan’s investments does not make sense for our business model.

Fiore: We have moved to a flat fee for services received model. It’s like a menu; we customize the services needed based on the plan and assign a cost to each area based on the time and work flow involved. For those advisers who say, “wow, that’s a billion-dollar plan, it’s going to make us a ton of money,” your time is up! A $1 billion plan receiving the same services as a $100 million plan will pay similar fees, with the exception being, when acting as a fiduciary, fees are impacted due to the increased liability associated with higher asset levels and the work associated with servicing a greater number of participants. Either way, the flat-fee model is far more cost-effective for the plan and, ultimately, the participants. In many cases, our involvement actually has saved the plan money and resulted in significantly better services and greater support for sponsors and participants.

PA: What differences do you find in the sales process among various plan sizes?  

Kozemchak: The most notable difference is the speed or lack thereof that the projects progress and the extent to which procurement and legal are involved.

Worrell: Generally, we have found that smaller plans want us to come to them with one solution, or one product, while they simultaneously may be getting the same from multiple advisers. We have found that larger plans generally have a more formal process to engage us as a consultant to help them evaluate and select from multiple choices through an RFP or spread-sheeting process.

Rogers: Our experience is that smaller plans maintain advisory relationships that are based less on the value to the plan and participants, and more on the relationship with the decisionmaker. Oftentimes, the decision to hire us would seem rather easy—but never is.

Fiore: Our target market is on the larger side at between $50 million and $1 billion, as it seems that group understands and appreciates the value of our model best. However, where we have a local presence, we also handle smaller plans as we believe the participants invested in those plans need our services as well. Smaller plans tend to make decisions based more on relationships, word of mouth, and trust. With larger plans, the sales process has multiple stages and just because your uncle is friends with the president no longer guarantees you a win. Plan sponsors are much more in tune with the fact that fiduciary liability is real these days. As a result, they demand a proven solution that passes the scrutiny of regulatory agencies.

Peluse: While our sales process for plans of all sizes is fairly consistent, the logistical challenges with respect to education for those plans with locations across the country tends to be the most prevalent difference. In those situations, we are more creative in our approach when reaching out to participants. While we will work with the plan committee to schedule onsite meetings at as many locations as possible, we also utilize Webinars, customized education presentations available online, as well as conference calls to ensure all participants have equal access.

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

Spach: Do you feel responsible for your employees’ ability to reach a meaningful retirement and do you think you have done everything you can to feel good about your retirement plan program.

Rogers: “In addition to you, who else is looking out for the best interests of participants?”

Mark Ratay: Do you believe your current plan is successful for both you and your employees?

Lacey: What are your main concerns and challenges with respect to managing your company’s retirement plan?

Fine: As a plan sponsor, do you truly know all of the costs associated with your qualified plan and do you understand the gross-to-net pricing of your recordkeeper?

PA: Let’s hear your “elevator speech.”  

Rogers: We help plan sponsors ensure that their plan fees are reasonable, their investments are solid, and their employees appreciate the plan and understand their investment options.

Fine: As a consultant with Gallagher Retirement Services, I am able to offer an independent, objective, and unbiased consultative approach. I also can provide customized solutions through our depth and breadth of knowledge in the industry. At Gallagher Retirement Services, we manage the participant education and communication process through our Participant Communication Strategy and Management Process. We deliver Fiduciary Risk Mitigation and Management for overall plan governance through our procedural and substantively prudent process management.

PA: What do you expect from your plan sponsor clients? 

Worrell: We hope that our clients will share our passion for delivering a best-in-class plan. We encourage clients to rely on us for guidance and independence and to consult with us on any issues that arise, whether they are regarding plan design, legislative changes, fiduciary issues, participant communication, fees, investments, or vendor issues. We hope that they also will share our goal of creating a best practices retirement plan.

Spach: To care. Then, when we sit down as a committee, we are all working toward a common goal. I expect them to do what they can to reach the employees regardless of past results.

Steele: We expect our clients to be actively engaged in the design and management process to the degree necessary to achieve optimal results. We also expect the sponsor to endorse our educational efforts and provide the needed access to plan participants to perform our private education.

Kozemchak: Involvement in understanding plan needs and then making prudent decisions to improve plan health.

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

Lacey: Responsiveness is the number one quality we look for in service providers. There is nothing more challenging than being held up trying to solve a client issue because the provider won’t get back to us. It seems like such a simple thing but you would be amazed how rare it can be. We also expect providers to understand our service model. Many of the things we do for clients have historically been provided by a vendor client relationship manager. This is changing. Quality advisers today position themselves as the quarterback of their client’s retirement plan. Our advisory services span every category of a plan including fiduciary governance, investment monitoring, plan design, operation, fees, vendor services, etc. We expect our provider partners to understand what we do and not step on our toes. We want them to have a strong relationship with us and our clients, but we do not want them to do our job for us.

Ratay: First and foremost, we expect accuracy in their recordkeeping and great service. We also expect those providers we partner with to be innovative. It is essential that they always be thinking about the needs of the participant. For example, the providers that we partner with are those companies that have developed risk-based model portfolios, target-date funds that consider both risk as well as the participant’s expected retirement date,and retirement income vehicles.

Kozemchak: Commitment to the client and to doing what it takes to meet the plan sponsor’s and plan participants’ needs.

Spach: Products that do not replicate what we do and continued efforts to reach the participants.

PA: What’s the hardest lesson you had to learn about working with retirement plans—and how did you learn it? 
Rogers: That often the decision on which adviser to hire might have more to do with personal relationships, than what might be best for the plan and participants. We have had several lost opportunities because the President had a relationship with someone that the CFO and HR Director were unaware of during the evaluation process.
Kozemchak: Not all committees have the same objectives and not all committee have the same commitment to their plan participants.

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

Worrell: Helping small and mid-size plans achieve a plan that meets best practices standards for fiduciary oversight, investment opportunities, reasonable fees, and a meaningful participant experience that results in prepared participants. We view one potential avenue being Multiple Employer Plan arrangements. This arrangement has tremendous appeal to the thousands of plan sponsors who want to offer a retirement plan, but want to outsource some or all of the fiduciary risk, administrative burden, and potentially reduce the cost of offering a plan.

Deviney: I think the new regulations present significant opportunity for advisers that understand the retirement plan market. The 408(b)(2) regulations are going to expose a lot of advisers that have been collecting commissions without really providing any value. Plan sponsors will increasingly be looking for a consultant that can help them navigate through the new rules and make informed decisions.

Steele: The impact of the industry’s focus on disclosure and conflict free services speaks volumes’ to our business model. The focus on fiduciary oversight and providing meaningful, measurable results is also a huge benefit to our firm’s future growth.

Fine: I see a tremendous opportunity right now to expand our consulting services for defined benefit plans. Many employers are dealing with major liabilities in their defined benefit plans. There is a huge need to help those who are struggling because they are underwater with the funding of their plans. As cities, states and municipalities come under continuous budget pressures and finance management; there will be a shift from defined benefit to defined contribution methodologies.
Another opportunity is the management of the educational process for employees. In today’s environment we find that plan sponsors and participants are not fully prepared to undertake retirement. Plan sponsors and participants need deeper levels of information and education in terms and language they can understand. We believe that with the current and predicted future economic climate, it is imperative to have a long-term strategy and plan in place to communicate and educate employers.

Spach: The 403(b) and 457 marketplaces.

PA: What do you predict will be the most significant impediment to retirement plan advisers in the next two years?  

Worrell: Dealing with the “noise” generated by regulatory and legislative changes.

Deviney: Retirement plan advisers will continue to be asked to do more for less. Advisers are going to have to find new ways to improve their efficiencies in an era of increased fee scrutiny and lower margins. At the same time, firms will need to adjust their practices to adapt to the new legislation and regulations. That can be very intimidating.

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

Worrell: First is retirement readiness of participants. Our interaction with participants is focused on achieving results—i.e., increasing participation and deferral rates. We use concrete examples and personalized illustrations. Tools that use real salary info, and plan matching-formula figures, such as “gap” analysis and “personalized savings analyses” as well as our “Deferral Calculators” help drive home the message in personalized terms. We use our “Action Sheets” to capitalize on the momentum we create in meetings so participants can make changes on the spot. Our “Employee Meeting Reports” tell us that we make an impact when we meet face to face with employees; as a result of our meetings, 92% of eligible nonparticipants we met with enrolled, 37% of participants we met with increased their deferrals, 50% of participants we met with reallocated their accounts.
Second is competing demands on our clients’ time which stretches their ability to fully understand the evolving complexities of retirement plans and to properly carry out their duties as plan trustees/fiduciaries. We assist clients by helping them properly set up and maintain their fiduciary files, by taking detailed meeting minutes and following up proactively on decisions reached in committee meetings. We educate and inform clients during plan meetings, through our monthly plan sponsor newsletters, and with blast e-mails on timely topics as they arise. We provide guidance to help them know what they need to be doing, and assistance to help them do it.

Fine: One of the most important issues for plan sponsors is the fiduciary obligation to make decisions for the benefit of the plan participants and beneficiaries. As fiduciaries, they have the ultimate liability. I help the sponsors minimize their risk through the procedural processes we have created. Some of the actions we suggest for fiduciary risk mitigation include: a written Investment Policy Statement that is fully integrated with our documented investment monitoring and analysis process; documented and disciplined fund analysis, evaluation, monitoring, and replacement process to ensure that funds are chosen in accordance with and adhere to their stated investment styles and objectives. This analysis utilizes both quantitative and qualitative approaches; and full fee analysis and disclosure for hard-dollar and soft-dollar costs. Our Fiduciary Risk Mitigation Process includes fiduciary overview and responsibilities; establishing and monitoring plan committees; fidelity bond and fiduciary liability insurance; safe harbors; identifying potential mistakes; and timelines and reporting.

Steele: Sponsors lack the resources in many cases to fully take on the responsibilities that come with offering a corporate retirement plan. By becoming the sponsors’ advocate, we are able to plug in the expertise and resources that they lack, while protecting the fiduciaries from excessive and often unknown liability. Another issue is being able to adequately evaluate the abilities of their current service providers and advisers to meet the highest level of quality and benefits to the sponsor and plan participants. Focusing on results and measureable changes in participant behavior must become part of the sponsors’ critique of their retirement offering.

Ratay: The most important issues plan sponsors face is to make sure their employees are ready for retirement and have a comfortable understanding of their plan’s features and investment options. In order to overcome those issues, we work with the plan sponsor to provide as many onsite education meetings as possible. We also utilize automatic enrollment along with creating customized target-date funds to assist our clients in overcoming that challenge.

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

Worrell: In order to grow our business and maintain the high service levels we demand, I am focused on building efficiency and teamwork. We have created a structure of procedures and checklists, and clearly defined roles for each team member. We actively promote team dynamics using Lencioni’s book, “The Five Dysfunctions of a Team,” as a guide. Our quarterly “off-site” meetings are a time for us to get away from the office to focus on improving our service delivery, timelines, and efficiency (what we call working “on” the business as opposed to working “in” the business). We created procedures, templates, processes, and checklists for recurring major tasks such as producing our quarterly investment reviews, preparing for employee education meetings, trustee meeting prep, creation of formal meeting minutes, and asset allocation recommendations for participants depending on age/risk tolerance.

Spach: I hired an outside CFO. We have a game plan for what position we hire next. We continue to write good business which means we feel good about the engagement and the plan sponsor feels good about the fees they’re paying and services they are receiving. We are also counting on RPAG to stay ahead of the curve.

Steele: By limiting the number of new clients to those that appreciate our capabilities and are willing to commit the time and interest to improving their plan, we are able to maintain controlled growth with extremely high retention.

DesRochers: Certainly you have to commit to increasing your infrastructure, but you also need to improve your efficiency as well. Increasing the number of people performing tasks isn’t enough. Your team needs to be highly trained and qualified and you need to build systems that function and deliver repeatable, proven solutions. The good news is with history and experience comes some efficiency because we can draw upon what worked, or didn’t work in the past in order to bring about a good solution for our client. However, let me say this, you better love what you do and be truly committed to it, because if you are doing it right…you are going to be really tired.

Ratay: We have been able to grow our business while maintaining our high service standards by partnering with other successful advisers at Morgan Stanley Smith Barney. Those advisers may have great relationships with executives but may not have the expertise to work in the retirement plan industry. We bring our experience and processes to the opportunity with great success for everyone involved. Our team oversees all aspects of the plan to ensure a consistent client experience while the advisers we partner with assists us with communicating our educational messages.


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

Deviney: They outsource the service to plan providers. Clients are hiring you to advise them and their participants, not to schedule meetings with the providers. If the provider is doing all the service, you are not bringing any value, and that’s when you become expendable.

DesRochers: They tend to look for a magic bullet, an answer that will instantly make them successful. When new retirement plan advisers come to us, they say “how did you do it?” The only real answer is a lot of time, a lot of hard work, and listening to your clients’ concerns.

PA: What’s the one thing you hope your competition never figures out? 

Worrell: How valuable a client relationship is. A quote we have highlighted at our firm is from Sam Walton: “There is only one boss. The Customer. And he can fire everybody in the company, from the Chairman on down, simply by spending his money somewhere else.”

Lacey: Great question. I think many advisers do not believe they can truly charge for their time. I’m not sure if this is because they are not confident in the value they add or if there are other reasons. Part of it probably has to do with the traditional method of charging for retirement plan advisory services—commissions/fees pulled out of plan assets. If an adviser is able to articulate his/her value proposition and back it up with a comprehensive service model, then there should be no hesitation to state confidently what revenue he/she requires. For us, this generally comes in the form of a retainer fee that can be paid out of the plan or by the company. Quoting a minimum revenue amount that must be charged for services regardless of plan size makes assets less relevant and, therefore, opens up markets that many advisers historically have not been interested in (think micro).

PA: If we asked your clients why they do business with you, what would they say? 

Deviney: We are able to take very complex and technical material and communicate it to our clients in an easy-to-understand format. This applies to both the plan sponsor and plan participants. People are suspicious of what they don’t understand. If you can put the plan into a format that is easy to understand, sponsors will be more engaged and willing to take your advice and employees will be more apt to participate.

Fine: These are the reasons why our clients do business with Gregg Fine and Gallagher Retirement Services: absolute integrity; industry knowledge; flawless execution; total commitment to excellence and client innovation; and constantly thinking ahead.

Steele: I believe they would say “We work with Pension Architects because they take care of us.”

Fiore: I am confident they would say we are a truly valued partner, that they can and do count on us, and that we deliver on what we promise. Plus, I am sure Steve would like it said that “participants really notice a difference, and they are engaged in their own futures.” Yes, I think they would all say that and, if not, I want to know about it because we are going to fix it.

Ratay: I would hope they say it is because they feel extremely comfortable with our knowledge and expertise and appreciate our strong desire to help their employees.


*Those participating in the roundtable were:

Sean Deviney, Provenance Wealth Advisors, LLC
Gregg L. Fine, Gallagher Benefit Services
John W. Spach, 401(k) & 403(b) Advisors-Los Angeles
Philip Steele, Pension Architects
James L. Worrell, GPS Investment Advisors, LLC

Phil Fiore and Stephen DesRochers from FDG Institutional Consulting Group at UBS
Michael Kozemchak at Institutional Investment Consulting
C. Todd Lacey from The (k)larity Group
Kenneth Rogers from Rogers Financial
Mark Ratay and Daniel Peluse with The Ratay Group at Morgan Stanley Smith Barney