Standing Out in the Crowd

Art by Yuko Shimizu

Winning new business and distinguishing your firm from the competition is as challenging today as it has ever been, industry experts say. In the past, retirement plan advisers’ primary sales strategy was often targeting plans with high asset-based fees to prove they could offer similar services for less, says Tom Ruggie, president of Edge 401k Funds and a former plan adviser in the Orlando area.

“That type of thinking really goes back to 2008 and the economywide stress of the financial crisis, when companies started looking at the retirement plan as an area to potentially cut costs,” Ruggie says. That, along with the stronger fee disclosure regulations phased in by the Department of Labor (DOL) since the crisis, “has led to fees falling significantly across the board for retirement plan services, which in turn has started to reshape the competitive forces in our industry,” he says. As a result, sponsors today are looking for advisers who are experts in their industry niche and who can significantly improve plan performance at an attractive price.

Ruggie is far from the only industry professional to make that assessment. According to a 2014 fee benchmarking report produced by BrightScope and the Investment Company Institute (ICI), “A Close Look at 401(k) Plans,” the all-in fees associated with 401(k)s decreased on average by around 10 basis points (bps) between 2009 and 2012, with the largest decline coming among plans with less than $1 million in assets. A separate 2014 report from Deloitte and the ICI, “Inside the Structure of Defined Contribution/401(k) Plan Fees, 2013,” found the median defined contribution (DC) plan participant paid an all-in fee of 0.67% of assets annually, as of that year.

Industrywide fee estimates vary according to the source and often rely on informal figures supplied by plan sponsors, Ruggie says, but the downward trend is real. “[It] goes to show you that competing on fees alone is not working as well anymore,” he says.

“Increasingly, the 401(k) business is becoming commoditized, and as a result there has been a lot of downward fee pressure,” Ruggie says.

Plan sponsors also appear to be more aware of the fiduciary importance of seeking value and quality from retirement plan service providers—not just a low fee. Given this environment, Ruggie warns that “the old methods of prospecting for new plans by coming in with a lower fee won’t work as well moving forward.”

Perfecting the Value Proposition

One major hurdle to sales success in this service-focused environment is that a real and widening gap exists between what financial advisers say during early-stage client meetings and what truly resonates with prospects, according to research from Pershing, a BNY Mellon company that provides investing and business solutions.

A 2014 report from the firm, “What Do Top Advisors Say and What Do Investors Really Think?,” examined the value propositions and selling strategies of the fastest-growing advisory firms across different industry segments. The analysis shows that an effective value proposition, reflecting client expectations, can strengthen new connections and foster faster practice growth. Despite this, very few advisers seek out objective guidance in formulating and improving such statements, or the sales process in general.

Above all, an effective value proposition answers the critical client question: “Why should I choose your firm over the competition?” According to the survey, 60% of advisory clients have a difficult time differentiating between potential advisers, mainly because prospecting firms make similar or identical service-related statements. Pershing says this makes it difficult for clients to make informed decisions in the request for proposals (RFP) and service negotiation process. 

The strongest value propositions, according to Pershing, incorporate the unique attributes of the advisory practice being discussed; a rational explanation of how the firm’s attributes will benefit the client; and language that evokes emotion, especially feelings of optimism. Firm leadership should also take pains to ensure a unified sales effort that promotes clarity and consistency.

Winning the Value-Add Game

In the defined contribution market, adviser sales and service provider value-add programs are more closely linked than in any other segment of asset management, according to a 2014 report from Chatham Partners, “Changing the DC Advisor Value-Add Game: Maximizing Your Investment in DC Advisor Value-Added Programs.”

The analysis compiles input from hundreds of financial advisers—as well as retirement heads at broker/dealers (B/Ds) and industry executives at defined contribution investment only (DCIO) and recordkeeping firms—on the importance of value-add programs leveraged by advice professionals. The survey finds the most powerful value-add programs are those bringing together practice management solutions, sales and lead generation, plan sponsor engagement tools, plan participant engagement tools and intellectual capital.

The Chatham analysis shows value-add programs can deliver better incremental sales in the hands of a skilled, producing adviser. However, the analysis warns that simply adopting a value-add program does not guarantee sales success. Instead, these programs are most valuable to the advisory firms that are “most adept at figuring out what to offer, to whom and how …,” Chatham finds.

In the sales process, value-adds open doors or break ties, the survey suggests. For example, when two advisory firms offer a plan sponsor similar pricing and overall level of service, having more advanced participant tools can help one firm stand out. Value-add offerings also help improve adviser sales by freeing up more time to focus on business development over client service, usually by simplifying account maintenance functions and bringing call center advice resources to plan participants.

Chatham reports that advisers often discount the importance of research and thought leadership as a value-add, but survey results show the most voracious consumers of thought leadership are advisers who earn the bulk of their income from retirement plans. Successful retirement advisers are always looking for ideas that benefit either their practice or their clients, he says, and they can take intellectual capital and make it their own.

Chatham concludes that it matters less where value-add programs come from—whether a recordkeeper, investment firm or third-party administration (TPA) partner. More important is how innovative advisers are in the way they use the programs to cultivate an image of practice prowess and relevance.

Brand and Reputation

Rick Shoff, managing director of CAPTRUST Financial Advisors in Philadelphia, says branding and reputation-building are two ways retirement plan advisers can stand out amid converging service models and pricing practices—especially advisers who are part of a larger team or network. Being affordable and free of conflicts of interest are still important, Shoff says, but these are simply the price of admission in today’s competitive environment. 

Shoff notes that advisers working at CAPTRUST or other large advisory networks are encouraged to sell on their firm’s reputation for consistency and quality, but independent advisers should also be ready to make the case for why their firm is a stable and reliable partner. Client testimonials can have some influence here, but it is even more beneficial to conduct formal client performance studies and be able to specifically demonstrate in sales meetings how existing clients have benefited from working with the firm.

Shoff says that a firm’s image and reputation have become even more important, as the adviser hiring process is now generally conducted through formal requests for proposals (RFPs), instead of informal, word-of-mouth recommendations, which might have been the case in the past. Sponsors now commonly look to centers of influence, such as Employee Retirement Income Security Act (ERISA) attorneys or corporate tax professionals, to make recommendations about what advisory firms to invite to participate in the RFP process, so building contacts and respect among these communities is equally critical.

The brand of the individual is just as important as the brand of a firm, suggests Bill Chetney, CEO of Global Retirement Partners in Capistrano Beach, California. “In the end, people buy from the person in front of them, not from the firm,” he says. The human connection an adviser forges with the committee or the human resources (HR) staff that he presents to remains paramount. “A brand and a service model will get you in the door, but at the end of the day, it’s you as an individual and your team that will get the sale.”

Finding a New Niche

Chetney says it was not so long ago that plan sponsors wondered whether they even needed an adviser. That has clearly changed, and he feels the advice marketplace has fully embraced the need for a specialist retirement adviser or employee benefits consultant. “In order to differentiate yourself and position yourself for success, you need to have a true area of specialization,” he says. “It can’t just be ‘retirement.’”

Specialization in a plan type, such as 403(b) or 457 plans, for instance, or a particular region or city where the adviser has a number of other clients and a good understanding of the business environment is necessary, Chetney says.

Ruggie says his new enterprise, Edge 401k Funds, is an example of finding a niche. He suggests that the firm is first in the industry to link one-on-one participant advice and education directly to the plan investment menu. As explained by Ruggie, the firm’s flagship Edge Collective Fund Series comprises nine asset-allocation-like funds that are collective trusts managed in partnership with Alta Trust. Following the initial investment by plan participants, the firm provides recurring financial wellness support regardless of ongoing contributions or account balance, at no additional cost for the employer. The advice is paid for by the employees directly through the fund management expenses.

“Clients told us they wanted one-on-one advice supplied on their own time,” Ruggie  says. “They wanted recurring, one-on-one attention to help build a plan for financial independence over the long term. This became our answer to the question, ‘How can we differentiate what we do from the competition?’”

Now that he has found his specific message, Ruggie expects Edge 401k Funds to partner with other advisory firms to complement their business models—a collaborative service approach that he expects to see more of in the future as plan sponsors increase their service demands and providers seek new means of differentiation.