Nuts and Bolts
Every adviser defines success differently, but the emphasis increasingly is on quantifiable measures: How many clients were brought on this year? How many were lost? How many participants are reaching their retirement readiness goals?
Whatever the numbers, many of those figures also have underlying qualitative aspects: Prospects may become clients because you made them feel confident about their plan, clients leave because they are unhappy, and retirement readiness might be higher if participants were better engaged in meetings.
A study released in March by Fidelity Investments found that only 53% of sponsors fell into the categories of “satisfied” or “very satisfied” and concluded that plan advisers likely can increase annual sales by 10% if they can raise client satisfaction levels to “satisfied,’ and double that if they could push that to a “very satisfied” level.
Of course, the route to satisfaction begins even before the prospect becomes a client. Three panels at the PLANADVISER National Conference gave advisers help in attaining better prospect, sponsor, and participant satisfaction levels.
Coming out of the Cold Call: Advisers explain where and how they prospect for clients
There are many ways that advisers market their services to prospective clients: calling efforts, e-mail, print newsletters or mailers, and seminars, among other, more “creative” options. The right choice for a particular adviser depends on his business model, anticipated business growth, and, frequently, resources, agreed a panel of advisers.
Kevin Mahoney, VP, Merrill Lynch, whose office has $1.6 billion in assets under advisement, said his goal when first reaching out to a prospect is to establish that his firm is qualified in the area of retirement plans, that its members have designations and qualifications in this area, and that his group can help the sponsor build process.
He still relies on the old standby of cold calling. In fact, Mahoney said he tries to do some daily—about an hour per day. Other than that, he has two significant referral relationship sources. One is a bank relationship where its ERISA attorney likes Mahoney’s group’s process and has referred many small banks and businesses. The second source of referrals is other Merrill Lynch advisers, Mahoney said. By serving as a reference for advisers who do not have retirement plan expertise, Mahoney said he has taken on multiple new plans.
Referrals are also the main source of business for Bill Van Ess, Financial Advisor Employee Benefits, The Vincent Group, Inc. Although he does some cold calling, working for a large property casualty firm that is owned by a bank lets Van Ess market both to the agents and the commercial lenders; both have turned into referral sources. Van Ess, who has about $30 million under advisement and specializes in startup plans with up to $5 million in assets, uses prospecting data site freeERISA.com to learn more about his warm leads from referrals. Before he meets with the plan sponsor, Van Ess also calls to inquire about what the sponsor likes or does not like about his arrangement, and to get more information about assets, contributions, and provider services.
Despite being trained to “smile and dial,” Rich Schooley, VP, Morgan Stanley, said he has left the world of cold calling. Instead, he has developed a niche market where he stays within an industry and, by knowing members of an association, uses those reference points to gather warm leads within that market segment. Although this means his universe of prospects is limited to 500 prospects, Schooley said that having connections within the market lets him find personal connections with nearly all prospects.
After trying to buy leads, cold call, and use mailers, Michael E. Morris, Director, Institutional Consulting, of Ross, Sinclaire & Associates, LLC, an NRP member firm, said his firm has found something that has stood out: It has hired a calling service that follows up on leads that Morris and his team provide. His firm qualifies leads, identifying sponsors in its target market ($10 million in four states), and gathering data about the prospect from Larkspur. Then, those leads are fed to a marketing group in South Carolina that calls the prospects and gathers more information about the plan, pitching the services of Morris’ firm.
All the data collected during the call process is built into an ACT file, which Morris receives. Although Morris admitted it can get very expensive (the firm runs $70 per hour and charges for a minimum number of hours), Morris said he has received at least two appointments per week since using this service.
What might be almost as important as knowing how to get the lead is knowing when to give it up. Van Ess said he follows the “three strikes and you’re out” rule. If, after three contacts, the prospect does not return the phone call, Van Ess goes back to the referral source to let him know. That does not always mean contact is completely terminated—he said he might send on a related article in a few months—but he usually will not call again.
On the other hand, Schooley said he does not have the luxury of dropping leads because he is working in such a finite group of prospects. “If they tell me to stop, I’ll stop,” he said, but ultimately “I’m shooting for a 100% closing rate.”
The Successful Retirement Plan: What are the right benchmarks by which to measure a DC plan?
What metrics determine the success of a retirement plan? Do those mesh with the goals of the plan sponsor and plan participants?
In general, Matt Smith, Director of Retirement Services at Russell Investments, assumes plan sponsors want their participants to maximize their wealth accumulation, but noted that is not always the case. It is, therefore, important to start any conversation about benchmarking a retirement plan with an understanding of what the plan sponsor wants to achieve. Robert Goldstein, Principal, StoneStreet Equity Inc., an NRP member firm, said he sets annual objectives with each client and reviews those goals at each client meeting.
One place to start to understand the objectives of the client is the investment policy statement (IPS), which should contain a goals and objectives section, according to Al Otto, CEO and Founder of OneFiduciary Group, LLC.
John Prichard, SVP, Heffernan Financial Services, an NRP member firm, said he considers whether participants have enough money to retire. He also uses statistics from surveys and industry reports to show sponsors how their plans compare with others.
Otto said his firm measures a “retirement dignity index,” which determines how many participants will accumulate savings sufficient to provide a 70% income replacement in retirement. “Gap analysis is a wonderful tool to track goals,’ Otto said, explaining that his firm uses the visual of a gas gauge that shows a status between “empty” or “full” on every two-page participant report, a visual that effectively asks participants whether they have enough to “make it.” The second page of the report shows how plan design features can help them get back on track.
If the plan sponsor is hoping to achieve participant wealth maximization, Smith said the adviser should begin by looking at the participation and deferral rates. Another thing to consider, according to Smith, is match maximization. To do that, an adviser should know how many participants are deferring enough to maximize the match, a metric that should be close to 100%.
Of course, the panelists noted, investment benchmarking is still relevant to plan success. Although it sounds simple, Otto said, his firm calculates the return of the plan each year, which shows plan sponsors whether participants are investing well enough—i.e., if markets are up 20% but the plan’s return is only 2%, that is something that should be examined.
One thing Smith said does not get enough recognition is participant net investment return. Since investment thought generally recommends participants invest more aggressively when younger and conservatively when older, looking at an individual’s allocation and investment return can allow the adviser and sponsor to see how the participant base is faring.
Panelists agreed that the industry knows how to benchmark single asset-class funds and how to create an IPS. However, Smith agreed that one area that still needs work is in benchmarking target-date funds (see “Measuring the Unmeasurable“). Even if you create an index, Smith explained, it has to have a glide path. “I don’t think that, as an industry, we’ve gotten to the right answer,” he said.
What if a plan sponsor client does not care or cannot afford some of the options the plan adviser recommends? “If you have a plan sponsor who just wants his plan to match industry standard, that’s fine,” Smith said, “but they still have fiduciary responsibilities.”
Ultimately, whatever the measure, all panelists agreed the conversation with the client is vital. Said Otto, “I think, as an adviser, we should be held accountable to the same goals the client has.”
Meeting of the Minds
Best practices for participant education meetings in a post-PPA world
Do you know the meaning of the words synecdoche and cacophony? When James Sampson, a financial adviser, put them on the screen with other uncommon words, he sought to mimic the confusion participants feel when advisers lapse into financial jargon. Advisers should work on simplifying the jargon and avoid being “the stuffy suits in the room,” said Sampson, Director of Retirement Services at Telamon Insurance and Financial Network. “We need to focus these meetings on what’s in it for them.”
Chad Larsen, President of Moreton Retirement Partners, a National Retirement Partners member firm, is a fan of using video clips to deliver a message in an accessible format participants can remember. Using examples is another tried-and-true method the panelists mentioned. James Worrell, President of GPS Investment Advisors, said he has used real money to demonstrate how $1 turns into $1.50 with a company match. He also said his firm presents a spreadsheet with salary examples corresponding to the company’s match, highlighting the area where participants can receive “the most bang for their buck.”
The topic of participant education took on a particularly interesting tone at this year’s panel, which occurred during one of the more tumultuous trading weeks of the year. Blake Thibault, Vice President of Heffernan Financial Services, said that, in light of the current market, he plans on focusing meetings on the broader scope and the key elements of diversification.
Sampson suggested the use of targeted meetings based on participant demographics—such as a meeting for the over-50 crowd or for participants not deferring to the level of the match. Thibault has changed his education strategy: Instead of trying to teach participants to be investors, he now focuses on teaching them to be savers.
Sampson recommended an appropriate example for today’s market environment. To encourage younger participants to stay in equities for the long term, he compares it to having a long way to go on the highway, acknowledging that the fastest way to get somewhere is to stay in the left lane, and only move to the right lane when it is time to exit. “Don’t chase the market; stay in your lane and don’t try to get over,” Sampson tells his participants.
How do the advisers price their education services and how often do they deliver meetings? Worrell said that it depends on the client, but semiannual meetings are generally a good start. He is working on a good way to price his meeting services by measuring “before and after” participant and plan statistics. He said he tries to collaborate with human resources to find what the goal is: Does the sponsor want increased deferral or participation rates, for instance? As a result of the meeting, he wants to be able to show plan sponsors a difference in the numbers—whatever those may be.
Fee schedules for delivering participant education meetings also depend on the client, Thibault said. He currently is commission-based, but is moving more toward fee-for-service. He noted that it is hard to decide whether to do a flat fee or a graduated fee. Sampson said he prices all-in for his services, including one meeting, preferably two, up to four per year.
The panelists noted the change that automatic enrollment provisions have made, noting it will free up one part of the advisory business (the participation rate emphasis) to focus on others. “Because we know we have the investment piece taken care of, now we can spend more time on things like gap analysis,” Worrell said. —Ellie Behling
Illustration by John Hersey