Practice Management: Areas of Success

A look at what worked particularly well in 2020 and that could keep propelling growth in 2021.

There were several areas of practice management where retirement plan advisory firms excelled or made significant strides this year. Here, we take a look at five where the momentum could well continue into 2021, helping boost profits and laying the groundwork for future success.


Retirement plan advisers might gear up for continued mergers and acquisitions (M&As) between registered investment advisers (RIAs) and wealth management firms. According to PwC data, the value of M&A deals between such firms in the trailing 12 months through December was $53.4 billion, a new record.

Deals in November represented $45.7 billion in client assets under management (AUM), according to Fidelity Investments. “Not only was November the largest single month of activity as measured by AUM, but AUM volume in the last six months nearly eclipsed all of 2019, which itself was a record-setting year,” says Scott Slater, vice president of practice management and consulting at Fidelity Institutional. “We’re seeing a significant amount of large deals, as well as new investors continually entering the space. It’s important for every firm considering an eventual sale to develop a clear strategy, including timing and desired buyer characteristics, in order to capitalize on today’s opportunity.”

In its report, PwC says: “We expect the strong pace of deal activity to continue into 2021. However, the impetus for transactions has already begun to shift. Many deals in 2020 were led by more traditional drivers of cost-cutting and economies of scale, as firms looked for ways to cope with fee compression. Looking forward, we see more desire by some to expand capabilities, products and distribution. This, along with middle-market companies that may struggle to differentiate themselves in a crowded market, could be a prelude to future AWM [asset and wealth management] deal-making.”

Additionally, PwC expects private equity companies to continue to be buyers of RIA and wealth management firms.

Communicating Through Social Media

More and more retirement plan advisers now communicate with clients through direct messages on social media platforms, and while this picked up as the pandemic raged on this year, many advisers believe this form of communication will continue.

A report from Putnam Investments shows that nearly three-quarters of advisers (74%) rely on direct messaging through key social network platforms to communicate with clients and prospects. Of this group, 94% report gaining new assets. The survey shows 50% now use direct messaging on LinkedIn, with 92% gaining assets; 38% use Facebook for direct messaging, with 98% reported gaining assets; 33% use Twitter for direct messaging, with 98% gaining assets; and 26% use direct messaging on Instagram, with 98% gaining assets.

“This is an interesting development because there had, for a while, been this idea that social media is a place to build your brand and get your name out there, but, increasingly, it’s a direct communication platform for advisers to reach their clients and prospects,” says Rene Taber, research director at Putnam.

“It speaks to an evolving level of engagement,” agrees Mark McKenna, head of global marketing at Putnam. “We’ve always seen a highly active, though small, group of advisers using social media in this way. I think the real shift we’re seeing right now is that the industry has truly acknowledged the power of direct messaging on these platforms and particularly on LinkedIn.”

Building Referral Networks

Along the lines of using social media for marketing and communicating is building a referral network. Many advisers say it takes five to seven years to develop a relationship with a source that could become a valuable member of the referral network. These contacts can work for recordkeepers, third-party administrator firms, audit firms, Certified Public Accountant (CPA) practices, ERISA [Employee Retirement Income Security Act] attorneys’ practices, banks or property and casualty insurance brokers.

If an adviser works at a wirehouse or is part of a larger company, referrals can come from wealth advisers or benefits brokers.

The best way for retirement plan advisers to distinguish themselves for these potential sources of new business is to set themselves up as a thought leader, advisers say. This can be done by issuing newsletters or holding webinars.

3(38) Fiduciary Services

If a retirement plan advisory practice is not already offering 3(38) fiduciary services to its plan sponsor clients, it absolutely must, advisers say. Not only do sponsors like the perception that they’re gaining further protection from litigation, but the services make an adviser’s job of recommending funds much easier.

“As many advisers look at the difference between the two models, they realized that even if they were a 3(21) fiduciary, in many cases they were essentially providing the full services of a 3(38),” says Greg Porteous, head of defined contribution (DC) intermediary business at State Street Global Advisors.

“Also,” he continues, “from the adviser standpoint, it takes away a lot of the processes and administrative burden they would have to go through in terms of getting the fund committee’s permission to make a necessary fund change. 3(38) fiduciaries still have to answer to the committee, but not for a simple fund change. As a 3(21), you have to do a good deal of education for the committee, in some cases helping them understand the difference between a stock and a bond.”

Yet another factor driving interest in 3(38) services is that many advisory practices are centralizing these in the home office, or white-labeling them, making it easy for the adviser to offer turnkey 3(38) services, Porteous says.

Embracing Diversity

2020 will definitely be known as a year when racial and social injustice came to the fore, following the death of George Floyd at the hands of a police officer and the national protests that ensued. The financial services industry has long been known to be inadequately diversified, and calls for reversing this are increasing rapidly. Certainly, one step in this direction came earlier this year when Nasdaq proposed requiring companies listed on its exchange to disclose diversity on their boards.

In November, the CFP Board Center for Financial Planning released a new thought leadership report, “Diversity in Action: How to Sustain the Financial Planning Profession,” that features case studies from six leading financial planning firms on what they are doing to recruit more diversified financial planners to their practice.

The board cites three basic rules that need to be applied. First, managers must be engaged in solving the problem. Teams need to be exposed to people from different groups, and workers should be encouraged to be accountable for change. “This research confirms what our case studies show: that tactics focused on control are less effective than those that invite people to contribute,” the paper says.

Executives and senior managers must confirm their support for the effort. As well, all employees can become engaged through their feedback and contributions. Finally, firms need to evaluate their progress by using surveys and questionnaires and then determine where there is room for further growth.