Happy Together
“There does not seem to be an industry standard on how clients value adviser services,” says Rick Shoff, a Managing Director at CAPTRUST Financial Advisors in Doylestown, Pennsylvania.
Often, when advisory firm Northgate Benefits meets with potential new clients, “They say they are happy with their adviser, until we start talking about what an adviser should be doing for them,” says Mike Warson, Managing Partner at the Novato, California-based firm. “A lot of employers do not realize what an adviser should be doing.”
Even if sponsors do know the services they should be expecting from their advisers, pinpointing their satisfaction with an adviser’s services proves tougher than measuring investment results, says adviser Jill Shea, a Principal at Shea Retirement Services, Inc., in Irvine, California. “There are so many different factors in being a good adviser,” she says, “such as plan design, the selection of investments, participant interactions, and interactions with the client, including the CEO and CFO.”
Benchmarking one adviser’s services against another’s is challenging. No industrywide benchmarking tool for sponsors’ advisory services currently exists, although at least one is in the works. “What one adviser does versus another can be apples and oranges,” says Ron Eisen, Founder and Senior Vice President at Portland, Oregon-based Fiduciary Benchmarks, Inc., which is developing a benchmarking database for services delivered by various service providers to plan sponsors.
However, in this environment of market troubles and stepped-up fee scrutiny, advisers must do what they can to gauge a client’s satisfaction—to learn about client unhappiness before it culminates in the adviser getting his walking papers. “Advisers need to be proactive, showing that what they do is value-added and showing how their fees compare with others,” says Joseph Valletta, a Principal of Baltimore-based HR Investment Consultants and co-author of The 401k Averages Book, a guide covering 401(k) fees and benchmarking.
Otherwise, a client may find an adviser with more to offer. “This economy is really putting a focus on [retirement] plans, and employers are saying, “I better make sure we are doing this with somebody who does this for a living,”” says Rick Wedge, Northgate Benefits’ Retirement Plans Practice Leader. Says Eisen of advisers surviving or not, “There is going to be that parting of the sea coming in the next 12 to 24 months.”
Five Measures You Can Use
Here are five gauges that sources suggest advisers use to help determine adviser-client satisfaction:
1.Has the adviser proactively set service goals against which he can be benchmarked by the client? Shea’s biggest focus on determining client satisfaction comes not at the end of the year, but at the beginning. She meets with each sponsor and has an in-depth discussion about goals for the year, and out of those talks come specific action items for her. She then creates a calendar for each client that has both compliance-related deadlines and deadlines for things she will deliver, such as investment reviews and participant meetings. So, a calendar might say that, near tax-filing time, she will do an educational meeting about the tax advantages of retirement saving. “Getting client buy-in early in the year leads to a satisfied client at the end of the year,” she says.
Northgate Benefits signs a service agreement with each client, Wedge says. “One of the things that we see very frequently in the marketplace is the “Set it up and forget it” M.O.,” he says. An adviser gets a plan set up right, he says, “but then the plan gets forgotten.” To make clear to clients this will not happen with their plan, a typical Northgate service agreement specifies what it will do in the areas of fiduciary compliance, employee education, 401(k) committee education, preparation and review of the investment policy statement, investment-fund selection, investment-fund monitoring, performance reporting, plan-design review, plan-vendor search support, and vendor-finalist interviews. The service agreements get revisited annually.
2.Is the sponsor happy with the fiduciary protection provided by the adviser? Wedge’s typical client-service agreement spells out that, “Northgate acts as a named fiduciary of the plan and takes on the responsibility to ensure fiduciary requirements are met, including annual reviews, plan benchmarking, 404(c) compliance, etc.” Wary sponsors want that kind of specificity, Eisen says. From an employer’s perspective, he explains, “Job number one from an adviser is to give me a get-out-of-jail card. If I am a sponsor, I want to make sure that everything that is supposed to be done is done, and I am counting on you—the adviser—to be the quarterback.’’ While an adviser cannot literally keep a client out of jail, he says, he or she “can define a prudent decisionmaking process for that plan sponsor.” The adviser can gather and present the essential information needed, he says, and then help the client to make well-informed and well-documented decisions.
In this challenging environment, Eisen believes, advisers who survive and thrive will put a big emphasis on this client-service area. “Find out from the plan sponsor which fiduciary services are the most valued by them, and which are worth paying extra money for,” he suggests.
3.Have participation, deferral, and diversification measures improved? Classic ways to measure adviser success include changes in the employee participation rate and average deferrals. “How has the plan sponsor benefited from an adviser’s impact on plan design, and has it affected plan behavior?” asks adviser Barbara Delaney, a Principal at StoneStreet Equity, LLC, in Pearl River, New York. “For example, has the plan adopted automatic enrollment, and what is the increase in participation?” StoneStreet finds average participation for an automatically enrolled plan runs 94% or higher “no matter how low it was,” she says, so it tells sponsors to plan on that. Automatic increases have just started happening at her clients’ plans, she adds, with almost no drop-out. As for setting employers’ assumptions realistically about an adviser’s impact, she says, “Managing expectations is just giving them our experience.”
A big differentiator for advisers is not only whether the investment performance proved competitive, Eisen says, but also whether participants put the investments to good use in their allocations. Look at things like the change in participant diversification, he suggests. “When they see movement in those sort of dials,” he says, “plan sponsors will feel it is worth paying a premium for obtaining those results.”
Pure investment returns tell only part of the story in a chaotic market environment such as this. “Look at whether the investments the adviser helped select were responsible for helping clients continue to meet the criteria in the investment policy statement,” Shoff says. “Even if you have a fund that lost money, on a relative basis, if it is still performing at a high level, you are still adding value.”
4.Does the sponsor feel fully informed about fees? Recommends Delaney, “Ask them, “Do you know where all the dollars are going?”” Here again, Shea puts a lot of emphasis on communicating early and often. “They know what my fees are up front,” she says. “If it is a hard fee, they know it, and if it is basis points, we have discussed it over and over.”
An adviser first needs to help a sponsor understand the total plan expense—the all-in number that includes the investment management, recordkeeper, trustee fees, and adviser’s compensation—and how that compares to averages, Valletta thinks. “We have got an era when everybody is talking about all-in costs. For the most part, sponsors still are trying to understand that,” he says. “Then, if a client wants to go to the next level, an adviser can help the client understand how the fees are allocated on the investment side: What are the 12b-1 fees? What is the revenue-sharing? What is the adviser’s fee?”
CAPTRUST talks with clients mainly about the total cost, Shoff says. “If we look at costs for our clients, they never say, “Can you tell us how your fee stacks up against another adviser?” They want to make sure the total costs are in line.”
5.Does the client stick around, and serve as a reference? Northgate interprets sponsors’ willingness to serve as a reference to potential new clients as a major signal about their satisfaction, Warson says, and several advisers interviewed say they consider their company’s annual retention rate as a crucial indicator of sponsors’ feelings. “Client satisfaction, in my experience, is not a single event,” Shoff says. “Right now, being in a troubling time, it is a series of decisions made, and promises made and kept, with a client. Our business is all about trust and confidence and relationships, so a big part of that is getting a sense of how clients feel. Ultimately, plan sponsors vote with their pocketbooks, and our client-retention rate is still more than 98%, but there is a lot more to it than that. You constantly have to measure your success every time you are in front of a client. We are constantly saying to clients, “We made a promise to do something: Have we kept it?””
An Industrywide Benchmarking Tool?
Some advisory firms have developed their own tools to help gauge sponsors’ happiness. CAPTRUST, for example, regularly uses an electronic client-satisfaction survey. It asks clients about service features such as the online portal the company has set up for each employer, which, among other things, houses the key plan documents that the sponsor’s investment committee needs. The survey asks sponsors: “Do you use the portal? If you do use it, what do you use most?”
Shoff also likes to use the online-survey tool SurveyMonkey to do topic-specific surveys for a modest cost. He periodically sends clients a five- to 10-question survey on a topic such as their participants’ retirement-income needs. He uses the SurveyMonkey technology to create the surveys—which can incorporate multiple-choice or open-ended questions—and to capture the responses, which he then downloads. “The best thing is to keep it short and simple,” he says of client surveys. Respondents can choose to identify themselves or remain anonymous, he says.
Some firms such as National Retirement Partners (NRP) have a fee database of all their advisers’ clients, as well as some information on competitors’ fees. “We all want to know, are we being reasonable?” Delaney says. The database makes it fairly easy to compare a plan’s fees with what similar plans pay, she adds. Fellow NRP adviser Wedge also benchmarks himself by talking to other NRP advisers about things like what to put in the written service agreement. “The best way [to benchmark],” he says, “is talking to other successful advisers about what they are doing.” He does not share those conversations with clients, but they are reflected in the service he delivers.
With all the current focus on fiduciary responsibility and fees, sources say, it seems likely that a more industrywide benchmarking tool will emerge. “Someone will come up with a way,” Wedge says. Adds Warson, “The metric that might evolve is a check list of services. Something like, if you use 10 items to measure client satisfaction, what should they be?”
This year, Fiduciary Benchmarks plans to debut a new database that Eisen says will allow advisers and other service providers to benchmark their fees and services for the plans they serve. “We find that the best way to truly understand adviser services is to compare check lists of the services actually being provided, and the number of times the services are being performed, with similar plans,” he says. Its reports also will provide comparisons on the level of fiduciary responsibility an adviser provides versus a peer group of advisers serving similar plans, Eisen says.
The reports will divide the plan universe by using up to 10 criteria, he says, including plan type, total assets, number of participants, employer industry, auto-enrollment plan design, employer-match level, percentage of indexed investments, percentage of managed accounts, and use of company stock in a plan. It will only do fee comparisons on plans that were bid, or had fees reviewed, within the past three years, he says.
Within two years, the company hopes to have data on 40,000 to 50,000 plans, by gathering information from sponsors, advisers, recordkeepers, ERISA attorneys, and trustees. The company aims to release four reports this year with a retail price of between $99 and $999, segmented by plan asset size. FBi’s reports are intended to be sold to, and distributed by, advisers, consultants, recordkeepers, and other plan service providers.
However, Eisen realizes that just benchmarking data alone does not tell sponsors how satisfied they should be with an adviser. Success factors, such as changes in participant deferrals, also should play a big role, he says. “It is not as simple as saying, “My adviser charges me 35% more than the average adviser: I need to fire this person immediately,”” he says. “The bigger issue is, are their services really what you want? Are you getting good bang for your buck?”
Illustration by Leo Espinosa