Don’t Be Intimidated by Independence

It’s not for everyone, but one advisory firm founder says most retirement specialist colleagues are well suited for the move to independence. 

Joe Connell is president of Retirement Plan Partners, Inc., in Minneapolis—a defined contribution (DC) plan specialist firm he founded about three years ago after a distinguished career with larger firms, most recently LPL Financial. Three years on he says the move to independence was the right one, and he encourages more advisers to think about striking it out on their own.  

Connell notes that starting an independent advisory does not necessarily mean starting from scratch. By the time an advice professional feels skilled enough to go independent, he has probably generated some deep and lasting client relationships. In Connell’s case, six long-term clients were willing to join up under the new independent approach, representing about $200 million in retirement plan assets.

“I was able to form the core of my business that way,” Connell tells PLANADVISER. “Importantly, the challenges for the clients who move with you are not huge.”

There is, of course, a fairly lengthy process of papering new service agreements, Connell says, “and you need to carefully educate your clients about what any new agreements involve. That’s additional paperwork, and your services delivered to participants may shift somewhat, especially if you’re entering into a fiduciary relationship with a client who was not served in that capacity before.”

An adviser shifting to independence and taking on greater levels of fiduciary liability may be more limited with regards to speaking with individual participants, Connell explains. “That’s the type of thing that can confuse and turn away a client if you’re not proactive and careful to keep the sponsor and the relationship at ease,” Connell says.

Connell says his firm has so far only taken on qualified retirement plan clients, all joining up under the fiduciary umbrella. With no individual wealth business there is less opportunity for conflicts of interest or other fiduciary problems to arise, he feels.  

Perhaps the most important key to success as an independent retirement plan adviser will be one’s service provider partners, Connell suggests. He feels it is “crucial to make the regular effort to get to know all your plan providers, to establish real rapport and comradery with the relationship managers assigned to your plans.”

“I am very careful to make sure they understand the work we do and we understand the work they do, so we can avoid doubling up resources or wasting time on unnecessary projects,” Connell says. “I want them to know the education we deliver so they can complement it. The other benefit is that, as the one-to-one relationship builds, they are more likely to look our way when a new opportunity comes along.”

Connell says it’s important for clients to understand what “going independent” actually means.

“We are not sitting on the providers’ side of the table,” he explains. “As an independent interest, we’re negotiating hard on fees and working to create well-functioning plans that help people retire successfully and bring plan sponsor success too.”

NEXT: Preparing clients for the shift  

“The paperwork is already a lot in our industry, from the 408(b)(2) requirements and all the rest, so going independent takes some work from that perspective,” Connell adds. “If you are setting up shop as an independent registered investment adviser (RIA), you’ll have to go through ADV disclosures with clients and other steps.”

If an adviser is simply going from a national broker/dealer model to a broker/dealer that is regional or independent, the relationship isn’t going to change with clients as much from the compliance/regulatory perspective.

“In both cases, however, you’ll have to carefully explain to clients how the back-office capabilities are changing,” Connell says. Even when an adviser is launching a fully independent RIA, Connells explains that a given client’s recordkeeper and third-party administration firm can usually be maintained, further reducing disruption for participants.

“For the most part, in the transition to independence will not necessarily involve a provider change for your clients,” Connell says. “Most likely there aren’t going to be any blackouts or anything like that, from the participant perspective. That’s usually one of the thing plan sponsors are worried about, but the participant website and log-on information generally stays the same. In many cases it’s a pretty invisible change for participants.”

One helpful practice Connell found was to put together a one-page communication piece, a handout for plan sponsors to pass along to participants. The document clearly and concisely explains what the shift to an independent adviser means to them.

“Even if there aren’t specific service enhancements you want to talk about in this mailing, simply pointing out that all the information a participant might want is available can be very helpful and put people at ease,” Connell concludes. “It helps them to feel comfortable and understand the change. It’s giving them a piece of mind that the money is not really moving, the custody of assets is remaining the same.”

NEXT: Winning clients on your own 

Another independent advisory firm founder, Thom Shumosic, of MidAtlantic Retirement Planning Specialists, made the transition to independence about 15 years ago. He echoes many of Connell’s thoughts about the challenges and opportunities of independence, but their approaches to generating new businesses differ somewhat.

For Shumosic, aggressive cold calling or other prospecting methods don’t cut it. Instead “all the new business, at his point, comes from referrals.” Mostly it is certified public accountants (CPAs) doing the referring, Shumosic explains, but another profitable niche is within the walls of the broker/dealer his firm uses for access to investment products.  

“I have strived to make myself the go-to guy for qualified plan business coming into this broker/dealer,” he says. “The brokers want an expert like me who they can work with and know the clients will be treated well. I haven’t made a cold call in 20-plus years, mostly because I was bad at it, but also because referral-based networking is a better way to go. It brings a balance to the practice—you can push things into your calendar as they fit.”

For Connell, there is still a place for cold calling and prospecting, but he agrees it’s a challenge and there are other important ways to find new clients.

“I do think it’s a challenge to get the prospecting time in,” Connell says, “but there still is a lot of untapped plan business out there, plans that have never had an adviser. Don’t feel like you’ll have to go out and beat up your competitors to actually win business.”

Both Connell and Shumosic agree that one of the hardest things for an independent adviser to learn is that every 401(k) plan looking for an adviser is not going to be a good fit. As Shumosic puts it, “not every client or prospect will be good for your business.”

“When you’re growing an independent practice, sometimes you have to turn down a client and other times you will have to fire a client,” Shumosic says. “We had an employer come on board with us in December of one year, and by April it was very apparent the relationship did not make sense and was not going to correct itself. They ignored all our advice, basically, and a bunch of red flags went up. Sometimes, it’s just not the right fit.”