PANC 2011: The Commoditization of the Retirement Plan Adviser

With fee disclosure rules leading many to predict fee compression for advisers, how can you justify charging more than the average? What does it take to become “the premium retirement plan adviser”?

On day one of the PLANADVISER National Conference (PANC) in Orlando, three panelists discussed how retirement plan advisers can continue to be profitable even as fee compression becomes more and more of a reality.   

Asked whether a focus on retirement plans can be a competitive advantage anymore, Bill Chetney, Executive Vice President, LPL Retirement Partners, acknowledged that there are many advisers touching retirement plans; about half of all advisers at LPL have a retirement plan on the books. However, he also said that less than 5% have five retirement plans as clients and less than 2% have ten plans. So, he said, it is still a very specialized field and the speciailzation is valuable to plan sponsor clients.

Joseph Lee, Head of Defined Contribution Advisor-sold Distribution at BlackRock, echoed this sentiment: “We’re the experts. It used to be okay to be ‘proficient’ in defined contribution, but that’s no longer the case.  The trend towards specialization is going to continue; that’s why it’s not a commodity.”

And J. Fielding Miller, Chief Executive Office at CAPTRUST Financial Advisors, said this is “as good of a bull market as you can have in terms of being a retirement adviser.” Miller said it’s a huge advantage to be specialized in this field, especially in the mid-sized market where more plan sponsors are going through a formal RFP process than ever before. This is creating a huge demand for specialists, he said, and non-specialists can’t fake it anymore.

None of the advisers in attendance at PANC would argue that the need for retirement specialists exists– the question then becomes how can advisers position themselves to prove their value proposition is worth more than the “lowball” pricing?

Lee pointed out that a lot of it is perception. “[Plan sponsors] think it’s been free. Once they become aware that there is a price [for retirement plan administration and services], they’ll look more closely at what services are being given to them. They’ll be able to compare services. And you can offer measurable statistics, success rates, and results.”

The battle for advisers in pricing is in the pitch, said Miller. If people are lowballing the fee, “you don’t want to get knocked out before you get to the finals,” he said, adding that you have to get the value on the table early.

And it’s more than just investment due diligence, Chetney added.  That used to be the sole topic of conversation, but a better approach would be to present yourself as the intermediary between the plan and all the providers–ERISA counsel, investment managers, etc.–“be the interface to create efficiencies; offer yourself as a comprehensive solution,” he said.

In other words, it’s not about selling a product, but solving a problem. Miller said advisers should shift the focal point of the conversation with plan sponsors away from quarterly performance reports and more to plan outcomes. The investment component will still be at the center, but it will get more sophisticated as topics such as retirement income and target-date funds become more mainstream; investment due diligence will require a lot more work, which is more likely to lead to "profitability compression" rather than fee compression. 

Miller also pointed out one possible pitfall; “If you’re doing your job really well and things are running really smoothly, you’ll have to remind the client that it didn’t happen by luck. You might want to go in there and re-sell yourself and re-show the value, in case someone comes in there with a lowball rate.” An adviser has to find the “happy medium” between staying on the sponsor’s radar and not being a nuisance.   

However, Chetney said existing plans don’t pose as much of a problem as getting new clients can be. Existing clients tend to know what value an adviser is adding, whereas a prospective client has no idea.

Using commodities, not being one  

Miller said there is always a level of commoditization in every industry. “When a tool is developed–that has now become a commodity. You can’t blow past that. So you need to make it more anecdotal. Proactively going out, doing real research, and not just relying on the commodity as a tool.  Our best advisers get their stories out,” he said.

And what if your margins aren’t high enough?  Fees are too low and costs are too high? What should be done then?

Fielding had a one-word answer for this: grow. “Grab market share. If you’re thinking about specialization, this is the time to do it. That’s an easy answer, but every time you bring a new account in, the suns starts shining, the birds are singing–it just gets better.”

Lee said it’s important to analyze how much time you spend servicing existing plans and going after new ones.  “If you have a lot of plans, you have some pricing power. Look at your model – how you service and how you chase; find the things that are driving revenue and get as many assets under management as you can.”

As for closing advice for adviser conference attendees; what’s the next big selling point for retirement plan advisers?

Chetney believes it’s delivering better education and offering more conversations with employees. “Talk to people about their future–the lowballers are not willing to do that– and you are, so you can charge for that.”

Miller said his selling point is his talent.  “We invest our money in people. Sixty-five percent of our revenue goes to compensation and benefits. We have a 20% profit margin, 15% for overhead. Investing in people, that’s our differentiator.”