In Practice September 27, 2007

PA NC: Independence Dazed

Why be independent? And, when going independent, what business model is right for you?
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According to three advisers, all with different independent affiliations, speaking at the PLANADVISER National Conference this week, it is clearly a matter of personal preference.

Both Tom Noble, of the Noble Retirement Group, a member firm of NRP, and Rick Shoff, SVP and District Manager of CAPTRUST Financial Advisors, offer both a broker/dealer and RIA model. However, panelist Michael Goss, Executive Vice President of Fiduciary Investment Advisors, LLC, is only an RIA.

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“I don’t think one is better than the other,” said Shoff, of his decision to offer both fee models to this clients; “at the end of the day, it is the client’s decision.” However, he says, he does see the RIA model being more appealing to the mid to larger plan size. Moderator Paul Powell, TK at 401(k) Advisors, said that recently a $3 million plan asked to pay his firm a flat fee, showing that the fee consciousness is spreading to the smaller market.

In the recent regulatory and fee-focused environment, “more and more clients want to pay fees in RIA model and know exactly what their fees are,” Goss commented.

Acquisition Versus Affiliation

The three panelists all had different business models, as far as the ownership of their firm.

Rick Shoff, who joined CAPTRUST in late 2006, said it was an important decision to decide to go from owning his own practice, to being a part of a larger firm, who then acquired his practice. “I knew it was time to leverage my assets,” he said. Before being acquired, he had six employees focused on retirement plans; now he only has three because the work the rest of the staff did is now taken care of in CAPTRUST’s Raleigh home office. Although there had been lots of upsides to running his own business, Shoff said he was never fully optimized with respect to capital and thought that being acquired by CAPTRUST was the best way for his to grow.

Two-and-a-half years ago Tom Noble decided to start his own firm. In deciding to affiliate more recently with NRP, Noble said he found the retirement-centric focus appealing. Because NRP is retirement-centric, but not exclusively focused retirement, Noble said he sees all kinds of possibilities for growth, both in the retirement space and in the wealth management space. In Noble’s opinion, NRP offered him access to intellectual capital and to tools that would allow him to be more successful, including things such as lead generation support.

Goss and many members of his firm had been with Wachovia previously and decided that, because of their unique consulting arrangements with clients, the best way for them to have their own company was to create an independent RIA practice. This meant they were starting from scratch, creating their own infrastructure, but in Goss’ opinion, “if you want to truly be independent, you have to really want to own your own business.”

When getting down to a decision, at the end of the day, everybody will make what they have work, Shoff explained. However, he suggested, “if you are thinking about making the change – go to your clients and ask why they work with you.”  Then, use that to determine what you can leverage.

“You don’t know what you don’t know,” Noble said, but you can go out and find people to help you do things you don’t know how to do.

In Practice September 27, 2007

PA NC: Should Retirement Income Be a Part of Your Practice?

The conversation about retirement income should not be an at-retirement discussion.
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According to panelists at the PLANADVISER National Conference in Orlando, Florida, the need for retirement income discussions is large now, and will only grow with the Baby Boomers.

Consumers are looking to talk to someone about income planning about 10 years prior to retirement, but don’t know where to go, said David Liebrock, Executive Vice President, Retirement Business of Fidelity Investments Institutional Services Co. “It is not a question of if this a trend,” Liebrock commented.

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Aaron Hagwood, VP Wealth Advisor of The Hagwood Tomoda Group at Morgan Stanley says his practice used to be 65% 401(k) but he has seen that decrease as the amount of wealth management, specifically retirement income work with retirement plan participants, has increased. Now, he says, retirement plans probably only account for 50% of his practice’s revenue.

Troy Hammond, President of AmeriFlex Financial Services, a member firm of NRP, said that although he has a retirement income group within his practice that accounts for about 50% of his revenue, he doesn’t do wealth management sales. Instead, he says, his firm focuses on the accumulation and decumulation concepts and helps participants understand whether or not they will have enough money in retirement.

Although he acknowledged that he hasn’t had plan sponsors, acting in their plan sponsor role, ask for retirement income planning for their employees, Hammond said that when he discusses it with the retirement plan committees (who happen to generally be in their 50s), the committee members all want it, and so then they realize the value of the offering.

However, the value of the offering is in approaching individuals before they retire, so Hammond and his practice have begun retirement planning seminars that they do well before retirement. “A lot of people are withdrawing funds pre-retirement,” Hammond explained. Therefore, “you have to start the process before their last paycheck is arriving.”

A Retirement Income Practice

Brand yourself as a retirement income specialist, Liebrock told the adviser attendees, and make yourself known to consumers. Although not all retirement plan advisers are looking to establish a retirement income practice, and many still plan to focus solely on the qualified plan space, Liebrock said advisers should realize that there is a significant opportunity cost to not getting involved in this space. “If you don’t capture rollovers,” he said, “what is the leakage or withdrawal rate from 401k plans?”

Account aggregation is a large part of building a strong retirement income practice. Both Hagwood and Hammond said that they have minimum account sizes necessary to work with their practices. However, oftentimes, if the adviser has established a good rapport with the retirement plan participants, they will want to work with that particular adviser and then the adviser might find that although a participant only has $50,000 in the one employer’s retirement plan, there are a few accounts from previous employers that can be rolled over, or an old IRA, or other assets that a participant will be willing to combine to meet a minimum account size.

Working with retirement plans lends itself naturally to a practice’s wealth management growth as well, Hagwood said, because the referrals that come from workers are invaluable. Referrals are a large part of Hammond’s business as well, he commented: “60-year-olds with big balances hang out with other 60-year-olds with big balances.”

The wealth management part of his practice is thriving, Hammond said, and advised those in the audience that if they were to broaden their retirement plan practice to include a retirement income offering, to “prepare for growth and be prepared from the beginning.”

Product Offerings

Although there are many product offerings out there, “you don’t want to pigeonhole people into products,” Liebrock warned, reminding advisers that they have to think through the fiduciary issues, including risk, cost, and limitations, of all products – both in-retirement products, such as the new annuities packaged as a defined contribution investment, and the at-retirement solutions.

Hammond said he uses many prepackaged solutions, and sees an increasing number of providers with new retirement income product offerings. However, it is important to examine what an investor gets in return for their money; an adviser must know if there is value, Hammond said.

In recognition of each individual’s varying circumstances and needs, Hagwood builds an individualized portfolio for each participant that includes insurance products alongside other investments.

 

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