Completing the Picture

It has been said that managing Employee Retirement Income Security Act (ERISA) plans is a team sport. It takes a number of qualified and credentialed experts to shepherd all the moving parts, and these relationships are vital to the success of any retirement plan—and to the advisers who serve them.

Producing and supporting a retirement plan is an intricate arrangement of assets, experts and regulations. As James Holland, director of business development, MillenniuM Investment and Retirement Advisors LLC in Charlotte, North Carolina, says, “You do not want to be the jack-of-all-trades and the master of none.”

A retirement plan adviser generally assists the plan sponsor or investment committee with the investment choice, education and compliance requirements of running a 401(k) plan. But an adviser is not the only available outside support to the plan. 

Plans with 100 participants or more need an annual audit, which requires the services of a certified public accountant (CPA). A recordkeeper maintains the plan’s records, establishing participant accounts, ensuring accounts are credited with all contributions and earnings and keeping accounts updated with participant events, such as hiring and termination dates. A third-party administrator (TPA) performs the administrative and some compliance functions for the plan—approving hardships and loans, cutting checks, issuing required plan communications—and may or may not also be the plan’s recordkeeper. To hammer out legal documents and any ERISA issues, an ERISA attorney can be a plan’s, and an adviser’s, best colleague.

It is a wise adviser who understands the importance of the team members and strives to build industry relationships—and strategic partnerships—that can be mutually beneficial.

Relationship Basics

When establishing a sound relationship with another party, start with the basics, according to David M. Weiner, an ERISA attorney and shareholder with Littler Mendelson P.C. in Chicago. “You are not going to set [a relationship] up until you know that you have compatible styles in how you advise and help clients mitigate risk,” Weiner says. “Best case, you will both approach clients in a consultative way and will understand how to coordinate in the areas in which you overlap.”

Early conversations should focus on the nature of the relationship—and advisers should be prepared to be specific. “It is really the element of partnership,” says Bill Harmon, senior vice president of 401(k) corporate markets of Great-West Financial in Greenwood Village, Colorado. “Advisers should be willing to have the conversation about: ‘This is what I do. This is what I need someone else to do.’ These things, of course, can vary, plan to plan and client to client,” he says. “I’m really looking for mutually beneficial partnerships between the adviser, the plan sponsor, the participants and the recordkeeper.”

Joey Bender, vice president of new business development at third-party administrator Retirement Strategies Group LLC (RSG) in New Orleans, agrees. “From the administrative and compliance side of things, we work best with advisers who understand the roles, and that we are responsible for plan design, Form 5500s, compliance testing and any questions that relate to compliance, and [for] updating the plan sponsor on regulations.”

Beyond role definition, when advisers select a firm with which to forge a relationship, reputation is critical, says Barry Klein, a partner and CPA with Babush, Neiman, Kornman & Johnson LLP (BNKJ) in Atlanta. “I need to know more about their technical competence in a given area and [whether] they are willing to go that extra mile. Certain providers take the information that a client gives them and just run with it. They think they’ve done due diligence. But some providers will actually look at—really look at—it and pick up the phone if something doesn’t look right and ask a question. That’s a key difference for me.”

Complementary Services

Synergies in the value propositions of the two partners’ services and businesses can be one key to smooth relationships, advises Harmon. “If I can complement their value proposition and make them more efficient and effective, we’re going to have a good relationship and we’ll both grow our businesses.”

Harmon points out that some advisers bill themselves as investment experts who look for someone to supply what they do not—typically testing and plan design. Some advisers say they do not sell group annuity business, and other advisers work only in the group annuity space, Harmon says. An adviser and a recordkeeper might have belief systems that are completely contradictory. “Custom models are very popular—and that could raise conflict,” Harmon says. “Some recordkeepers require or encourage proprietary funds, and some advisers might have an issue with that.”

A shared philosophy and a belief in the outcome that both partners want to achieve are necessary for a successful partnership, according to Harry Dalessio, senior vice president of strategic relationships at Prudential in New York. The partners also need to align around the markets they cover. “Many advisers and recordkeepers try to be all things to all people, so we look for strategic partners who are looking for similar alignments around a business model, a business approach and philosophy,” Dalessio says.

Harmon does note that Great-West Financial is sensitive to the danger of inadvertently cutting out an adviser through making a referral. “We stay as neutral as possible,” he says. Only if there is no adviser on a plan does Great-West provide a list of them. In those instances, when a plan sponsor contacts Great-West and asks for referrals, the company supplies a list of three advisers with background on their value propositions and lets the plan sponsor interview them.

The Best-Laid Plans …

Whether the relationships are formal or informal, challenges can arise. Klein recommends that advisers and providers discuss how potential conflicts will be addressed and who will retain the client. Less-than-optimal situations might include those around fiduciary responsibility, he says. “Participants may be put into investments where, through the share class, the adviser himself benefited,” Klein says. “Obviously this goes against the fiduciary responsibility. I want to know what they do. Do they make excuses and blame someone else, or are they going to take responsibility for the error and make it right?”

In addition, advisers must know what they do not know and make sure to keep other platform providers in the information loop, says Jeff Feld, a principal and CPA at Alliance Pension Consultants LLC in Deerfield, Illinois. For example, the sponsor might recognize an error in the plan, such as an issue about contributions or Internal Revenue Service (IRS) limits, or have a question that should be posed to another provider. Advisers sometimes unintentionally gloss over issues or try to answer technical questions better left to a CPA or other expert.

In the end, the most successful relationships are built on an understanding of the interlocking nature of the professionals who work together to support the retirement plan sponsor. Communication and the ability to brainstorm in order to solve problems jointly on behalf of the sponsor client are essential components of the relationship. “The biggest part of partnering is communication,” Dalessio says.

Advisers and their partners need to keep that give-and-take in mind. “Some advisers we’re on the phone with every day, sharing information about the joint client we are servicing,” says Dennis Sain, senior vice president of retirement services at The Newport Group in Heathrow, Florida. “We view the adviser as a client. It has to be a real partnership to be successful.”

View From a CPA

Jeffrey B. Feld, certified public accountant and a principal at Alliance Pension Consultants LLC in Deerfield, Illinois, describes himself as having “grown up in the retirement planning business.” Alliance is a provider of both recordkeeping and third-party administrator (TPA) functions, and Feld is versed in all aspects of supporting and monitoring a retirement plan. Alliance Pension Consultants works with advisers of all stripes, and plans of all sizes except micro plans.

Shared Values

Both retirement plan advisers and CPAs need to align themselves with professionals who hold the same values, Feld says. He went through a period in which he found advisers frustrating, he says. Since they were not retirement plan specialists, they would find a plan sponsor client and “throw it to you in disarray.” A partnership did not yet exist. But a light bulb went on in his head when he factored in his firm’s lack of a marketing department: Advisers could function to some extent as salespeople. “Advisers who work with an organization such as Alliance Pension Consultants are those who have decided the old commission-based model is not the best way for them. They have decided that unconflicted advice is the best way. It’s got to be truly a client-first mentality.”

When Things Go Wrong

From Feld’s perspective, the greatest influence an adviser can have on a retirement plan is how he handles the unusual occurrence, the unusual email or phone call. “The adviser needs, first of all, to be responsive to anything that comes up,” Feld says. These professionals need to know what they can handle—and what they cannot, to recognize that they are part of a service team and to keep everyone in the loop. “Don’t be a cowboy solving it on your own,” Feld says. “Be a good communicator on the team and reach out to others.”

Add Value

“A good way for advisers to approach CPAs is by giving them ideas for improving their clients’ plans with fund investments or plan design,” Feld says. “As an adviser, if you can gain the trust of an accountant who is not well schooled in this area, it could be beneficial. You have to be fairly sophisticated and have something to add in terms of questions they should be asking. We’ve continued to build our brand as one that doesn’t compete with advisers but supports them. We add value to smaller plans that need guidance and help with plan design.”

Plan Needs

“The CPA should be looking at the plan sponsor’s retirement plans for key elements of underperformance, such as the funds the plan is invested in, or at which elements of the plan design need work,” Feld continues. “These elements can be compared to the client objectives. The CPA could help the adviser by recommending someone who specializes in plan design. The point is, they’re not going to have the level of expertise they need, to navigate. Everybody takes his expertise and focuses on what he can do for the client. There’s a lot of value that can be added if everyone knows his role. Advisers have the ear of the plan sponsor client because they’re the trusted adviser. Most CPAs are not going to set up a plan—they’re going to call someone else.”

Contract or Casual Arrangement?

Feld says his firm pays the adviser nothing, so any work with one is completely casual. “We earn his respect by making him look good. There’s no contract between us and the adviser,” he says.

View From a Recordkeeper

A recordkeeper’s relationship with an adviser works best when it is collaborative, says Dennis Sain, senior vice president of retirement services for The Newport Group in Heathrow, Florida. “Since the ultimate goal is to support the plan sponsor client, both recordkeeper and adviser should be focused on and experienced in retirement services,” Sain says.

Retirement-Focused Advisers

When aligning with an adviser, The Newport Group weighs a number of considerations, Sain says. “We want to make sure the adviser has a retirement-centric book of business,” he says. “A lot of advisers work in a plan environment and have a wealth practice, which is fine as long as they are really focused on the retirement side, as well. If they only have one plan, that typically isn’t going to work as well for us.”

Market Focus

With respect to an adviser’s focus, “We like to have some understanding of his business models, how he approaches the market, the size of his retirement books,” Sain says. “If he is just getting into retirement, that may not be the best fit. He has to be established and have his business plans in place. We look for something like $500 million and up in assets. We also need to make sure that the adviser is targeting the market we play best in, which is solidly the middle—$5 million to $200 million and up, on the qualified side. When I’m out talking with an adviser, I’m very clear that we are not right for all his clients. If he throws us into every deal when it’s not the right fit, that’s not going to help the client—only the ones where he knows the lineup of services is going to meet the needs of his client or prospect.”

In Harmony

“The advisers we work with have a value proposition of investments and investment consulting,” Sain continues. “They choose and monitor the investments and go to meetings with the plan sponsor’s investment committee to report on the investments. We always do the participant recordkeeping and administration, and we have ERISA [Employee Retirement Income Security Act] consultants to help with plan design questions and needs. The one variable in most relationships is whether the adviser conducts participant and communication meetings or we do. We let the adviser take the lead on that.”

Contract or Handshake?

As to whether The Newport Group establishes a formal contract with retirement plan advisers, Sain says the firm does not. It does enter into business arrangements with wirehouses but not with independent advisers, he says. “The agreement is governed by an overarching contract with the wirehouse but not the individual advisers,” he says.

How Important Are Referrals?

Referrals from advisers are critical to The Newport Group. “All of our business is referred to us by advisers,” Sain says. “We have a process in place where we listen to the adviser, what he needs, what are the prospects. And we have a process where we evaluate what services are needed. If advisers refer business, we can help them with the request for proposals (RFPs) or for information. They might bring in two or three of our members, to go with them to meetings. We don’t meet with a client without the adviser’s knowledge. Typically, we participate in quarterly meetings with the joint client.”

View From an ERISA Attorney

David M. Weiner, an Employee Retirement Income Security Act (ERISA) attorney and shareholder with Littler Mendelson P.C. in Chicago, is versed in employee benefits and executive compensation. He has experience in all elements of the pay package, and his advice relates to both the strategic and technical aspects of benefits and compensation. Weiner strives for a smooth working relationship with an adviser, in which both parties are similarly aligned in their areas of expertise and in how they approach problem-solving. As others have stated, the team approach works best.

Helpful Adviser Traits

“A consultative approach is best,” Weiner says. “I look for that trait because it will match up best with mine and work best for the client. How well can we achieve those client objectives? What are our working styles? Are we both problem-solvers? A lot of ERISA lawyers are good at saying ‘no,’ but we need to be able to get to ‘yes.’ I want to make sure our styles are compatible. As a whole, advisers tend to be good at solving problems and working together.”

Aligned Expectations

“Our personal and business expectations have to line up,” Weiner says. “We’re not going to go from being best friends to being cutthroat enemies. At the end of the day, the duty all goes to the client. We can be very collaborative and close until the client’s needs and interests [eventually] supersede our own. We’re going to recognize that there is a higher duty, and we both owe loyalty to the client first.”

Referrals

“Make referrals that will enhance your own reputation,” Weiner advises. “If you are recommending an attorney or adviser to a client, you have to know that it’s a person or firm that will deliver for the client. Practically speaking, you’d also like there to be an understanding that referrals go both ways.”

Client Types

Both the adviser and the attorney need to understand their plan sponsor client profiles, Weiner says. “There’s such a difference in the different-size markets—that’s the biggest factor,” he says. “We’re only going to be able to help each other out if our client focus is similar. Our ability to give clients service that’s valuable to them is going to depend on who we’re dealing with, from a business standpoint, and to cross-refer for each other. You need to understand how the relationship will work when advising the client on tough issues, and you need to understand how you fit into the attorney’s business plan.” Weiner recommends that, before partnering with an ERISA attorney, a retirement plan adviser should ask, “How does the attorney advise clients regarding hiring, evaluating or firing vendors? Does the attorney have similar relationships with the adviser’s competitors?”

Disclosure to the Plan Sponsor

Whether or not the adviser should tell the plan sponsor about his arrangement with an ERISA attorney depends on the formality of the arrangement, Weiner says. “If it’s informal, then there’s not a lot to disclose.” Similarly, the adviser generally does not need to discuss other clients. Weiner says that if the adviser does tell the plan sponsor, all he needs to say is, “We have mutual clients” or “I work with a lot of others in this space.”

“If there’s more to the relationship, then there would be more to disclose,” he says. “These are more ‘casual alliance’ than ‘binding contract.’ 

View From a TPA

Joey Bender, vice president of new business development at Retirement Strategies Group LLC (RSG) in New Orleans, specializes in the micro plan market. “We’re smaller than what we could be, but I’m more interested in bringing in plans and keeping them on board,” Bender says. After 23 years in the industry, he observes that margins are increasingly compressed in the 401(k) world, and adopting required fee disclosures has turned up the heat. This can have some impact on how much service the adviser is willing to provide to a plan and where he might look for support.

Adviser Qualities

“Our ideal adviser is a little hungry and actually out there pursuing the business,” Bender says. “He has a fairly good grasp of the investment side of the equation and understands the marketplace from the investor’s perspective. The 401(k) world can get very confusing, especially the investment part. I want someone to keep it simple for participants.” RSG seeks out advisers whose whole practice is focused on retirement plans and helping people prepare adequately for retirement.

Business Terms

RSG’s arrangements with plan advisers are informal, Bender says. “It’s pretty much a handshake. We work in a couple of different fashions. We can use an open-architecture platform with daily valuation, and we have relationships with other providers where we just handle compliance,” he says. “We are an approved [third-party administrator] with Merrill Lynch. If we were to formalize something it would mean a lot of expense, as well as back-and-forth. Our contract is with the plan sponsor, and the plan sponsor signs off on the adviser. We want to determine what level of service the adviser plans on providing, and we’ll plug in as needed. Does he attend meetings? Provide education?”

Plan Sponsor Notifications

With respect to plan sponsor disclosures, “our plan design guide addresses documents and mentions the adviser assigned to the account, and that’s it,” Bender says. “We explain our role and the adviser’s role to the plan sponsor in a meeting but not in a contract. If the plan is with one of the vendors like ING, Fidelity Investments or John Hancock, their contract will address the broker’s compensation. I like to be at employee meetings initially so the plan sponsor can see that there are a couple of people servicing the plan.”

Referrals

RSG will refer clients to retirement plan advisers, Bender says. “Sometimes we’re asked for referrals by a certified public accountant [CPA] or a client,” he says. “We always give at least two or three advisers’ names.”

Sticky Situations

To avoid problematic situations, RSG establishes clear roles when working with its retirement plan adviser partners, Bender says. “From the beginning, define the roles. Who is going to answer what issues of compliance? If problems arise with a plan, advisers need to communicate that to us so we can correct it. I like to answer most—if not all—of the plan questions,” he says.

“If something goes wrong with a plan, I tell advisers the truth. It doesn’t always go well, but I tell them what happened. If it comes to a plan sponsor raising some issue that has to do with the adviser, I’ll tell him, ‘This is what you have to do, and this is what you’re being paid for.’”