The Efficient Frontier
Retirement plan advisers need help with much more than investment lineups. “It used to be so much about the product,” says Ken Pardue, Senior Vice President and Department Manager for retirement plan consulting at St. Louis-based Wells Fargo Advisors. “Now, it is about what kind of service model an adviser has. Just being able to bring Product A, B, or C to the room is not enough.”
Broker/dealers can help, to varying degrees. Think about these back-office support factors:
1. Look to create efficiencies. “The ability to run their practice efficiently by integrating various deliverables is probably at the front right now” of back-office support that advisers want, says Bill Chetney, CEO of San Juan Capistrano, California-based National Retirement Partners. Look for a broker/dealer with a client-management system that helps advisory firms plan workflows and that fully integrates with an adviser’s own system, he suggests. If a service agreement specifies that an adviser will do a certain number of client meetings throughout the year, for example, the system automatically prompts the service staff to make sure each meeting gets scheduled.
“Advisers really are focused on the ability to have autonomy, to focus their time on things that they enjoy most and that they believe they do better than anyone else,” says Rick Shoff, Managing Director of Advisor Support at CAPTRUST Financial Advisors in Raleigh, North Carolina. “Most advisers find that what they really enjoy doing is spending time with clients.” An adviser focused on face time may want to find an affiliation that offers support services like an investment-research team, he adds, so the adviser has to spend less time on that behind-the-scenes work.
2. Ask about any recent cutbacks. Given this challenging period for the economy and markets, some broker/dealers have reduced their back-office staffs, says Bill Van Law, National Director of Business Development at St. Petersburg, Florida-based Raymond James Financial Services, Inc. Some companies that have merged focus a lot these days on “how to squeeze maximum profitability out of the merger,” he believes. So advisers should not just assume that a potential affiliation partner has the staff resources to handle their back-office needs. “They should flat-out ask: ‘Have you reduced your staffing in the back office?’” he suggests. “Number two, ask, ‘What is your ratio of service staff to advisers?’ That is a good yardstick. We believe anything under a 2:1 ratio (two reps per one back-office associate) is good.”
3. Make sure it is a good compliance fit. This is likely to become even more important in the next few years. “The complexity of compliance is going to be an ever-increasing burden,” with Congress and federal agencies looking closely at fees and advisory work, Chetney says. “If [the broker/dealer is] not focusing on that, it is something it very much needs to focus on.”
Shoff is asked what he would ask a potential affiliation partner about compliance requirements. “The first thing I [as an adviser] would do is say, ‘Show me your advisory contract that you give to qualified plan sponsors,’” he says. “Everything you are able to do is in the contract, and everything you are not able to do is not in there.” That works better than just relying on verbal assurances, he says. Also, he suggests, ask to talk to other advisers who focus on the same market space, and ask how the firm’s compliance services work.
4. Get help to help sponsors with fees. “Investment due diligence has become somewhat commoditized,” Chetney says. Affiliation partners may offer similar basic provider-search tools, Pardue says, but advisers should look for ones that can help go deeper with analytics that clients need. “The tool itself is the same but, if one client is very concerned about fees, we can analyze the data and focus on that. Another may focus on administration, and another may focus on investments,” he says. Broker/dealers should be able to provide not just tools—some developed internally, some from external partners—but also staff with knowledge of platforms and products, he adds.
Of course, at this point, many sponsors want a particular focus on fees and fee benchmarking. Look for affiliation partners that can help an adviser go to clients concerned about fees and pinpoint the fee norms for plans of their size and in their industry, Pardue says. “We have a big-enough population of (more than 400) mid-size to large retirement clients that we can create our own fee-benchmarking data,” Shoff says of CAPTRUST. If advisers need to prepare a fee-benchmarking report for an employer, he says, “They do not have to stop everything and do it on their own.” Also, CAPTRUST does not have to use third-party data, he says, which he believes allows it to discuss clients’ fees with their providers more effectively.
5. Find tools that help ease employers’ performance anxiety. With so many sponsors and participants still nervous about volatility in their plans’ investment lineups, many employers value advisers who have strong investment-performance review abilities. Performance-analysis tools like Albridge, Morningstar, and Zephyr “still vary from firm to firm, but the real benefit to advisers is to have a reporting tool that is integrated into their firm’s back-office system so client reviews are efficient, accurate, and high-quality,” Van Law says. “It is the integration that is key. We hear from advisers that, while performance-reporting tools might be similar, unless they are seamless and integrated, the time and effort taken to prepare for client reviews is extensive.”
In addition, look closely at what types of investments a broker/dealer can cover in performance analytics, Pardue recommends. “The first generation of these tools was based mostly on mutual funds, but now there are a lot of tools that bring in things like separate accounts.”
6. Focus on getting help winning new clients. That help is partly intangible. “That is where branding is crucial,” Chetney says. “It is a critical difference.” Also, the help is partly tangible. For instance, NRP has national relationships with lead-generation companies and can negotiate a good price for its advisers, he says. NRP also does Webinars for potential clients, and it has negotiated contracts with outbound calling firms that help advisers set up meetings with potential new clients.
CAPTRUST also helps contact and schedule meetings with potential new clients for advisers, using its own internal staff. “It is a relationship business, so the adviser still has to do the heavy lifting,” Shoff says. However, larger companies have an established client list that can make it easier for an adviser to win new business with other sponsors, he says, rather than an adviser striking out on his or her own who cannot demonstrate that his or her firm has a record of serving similar clients effectively. “That,” he adds, “is a huge advantage from a new-business perspective.”