Value Added

Plan sponsors often fail to comprehend or value their advisers’ fiduciary services, according to those service providers themselves in attendance at the 2017 PLANADVISER National Conference (PANC). Asked if they think plan sponsors understand what it means to have their adviser serve as a fiduciary, 43% of attendees polled said, “No.” And, asked if they thought plan sponsors value their adviser serving as a fiduciary, 54% responded, “Yes, some do.”

Adviser Edward Chairvolotti, for one, has trouble getting sponsors to see the value of his services as a fiduciary. As CEO of Chairvolotti Financial Inc. in Winter Park, Florida, he has been talking to potential new clients about his firm’s fiduciary services since it started doing 3(21) investment adviser work eight years ago and 3(38) investment manager work five years ago. “I like to say, ‘I’ve been told, ‘No,’ more than most,’” he says, referring to potential sponsor clients who fail to see the value of hiring his firm as a fiduciary adviser. “We have more than 150 401(k) plan clients, but I still struggle with this every day.”

Chairvolotti does mostly 3(38) work now and explains to sponsors how this can help reduce their fiduciary liability, control plan expenses and improve participant outcomes. But when sponsors see their participants’ balances growing steadily in a long bull market, he says, they tend to be complacent about their fiduciary risk.

Beyond Investment Analytics

An advisory firm talking to potential new plan sponsor clients can communicate its value by focusing on how it can help a sponsor lower its fiduciary risk more broadly than just by providing investment analytics, sources say. Many advisory firms now utilize one of the same handful of third-party tools for investment analysis and reporting, says adviser Mitch Milless, senior vice president of financial services at RJF Financial Services in Minneapolis. “The biggest commodity in our business is investment advice,” he says. “A lot of the time, advisers are like, ‘I’m the wizard: I’m coming in, and I’m great on investments.’ In reality, we all have that capability. Many of our competitors say, ‘Our deliverable is the investment piece.’ We’re saying, ‘That is one part of our deliverable.’”

Advisory firms pitching their services often have little to offer on troubleshooting regulatory and compliance requirements, Milless says. RJF Financial has fashioned its organization to give sponsors that help, he says. “Our competitors will have five or six salespeople/advisers, and one or two or three advisers who are service staff,” he says. “We went the other way, where we have two or three principal advisers responsible for bringing in new business—but more advisers doing troubleshooting for our plan clients.”

The firm also distinguishes its fiduciary value from its competitors by no longer handling individual wealth management, Milless says. “Now, we don’t do rollover business at all. We said, ‘This [plan work] is going to be our specialty, so let’s not muddy the waters,’” he says. “So, we can say to sponsors that we have no conflicts of interest whatsoever. That helps, because not many employers are excited about advisers trying to ‘sell’ their participants.”

Focus on Risk Mitigation

Once signing a plan sponsor client, Chairvolotti Financial has learned to simplify how it explains the fiduciary process: both the sponsor’s responsibilities and its own fiduciary work. “We used to put a big binder together for our clients,” Chairvolotti says. “We stopped. We realized it was creating inaction, because it was so comprehensive.”

Now Chairvolotti Financial uses an online fiduciary-compliance tool that includes a sponsor dashboard breaking down the current status of fiduciary documentation work for that plan into three categories: completed documents, documents that need the sponsor’s signature, and pending tasks. Sponsors know specifically what they need to do, and when, to comply with fiduciary requirements and what tasks the advisory firm does. “This way, clients can see that we are doing something other than quarterly investment reviews for them,” Chairvolotti says. “We said, ‘We’ve got to put something in front of them that they’ll actually see, so they can know what we’re doing.’”

To show its value in helping sponsor clients handle their fiduciary role, Hooker & Holcombe Inc.’s investment advisory group, in West Hartford, Connecticut, puts considerable focus on risk mitigation—not just in investment analytics but in the broader sense of how that applies to a retirement plan. The group proactively talks to clients about potential changes in laws and regulations being discussed in Washington, for example. “For sponsors, the fiduciary role almost feels like protecting from a ‘black swan’ event,” the group’s president and chief investment officer (CIO), Rodger Metzger, says, referring to unpredictable occurrences.

“Plan sponsors are not sure what’s going to come up, so it’s nice to have someone who is constantly looking out on their behalf—and making sure they are protected from surprises,” Metzger continues. “That way, they not only have a high-quality investment menu, but they have someone who is looking out for other [potential compliance issues] on their behalf. If we give sponsors that, they are much less likely to pick up the phone when another adviser calls.”

The investment advisory group is deliberate about having those conversations with clients, Metzger says. It provides them with an annual fiduciary calendar that specifies the fiduciary topics it covers with clients each quarter. “Rather than mentioning something just as a spur-of-the-moment thing during a quarterly meeting, we’re being more methodical about setting aside the time to talk about: ‘Down the road, this may be a concern,’” he says. “The fiduciary calendar allows us to incorporate a lot of information into our quarterly report, and it also allows us to put that discussion into the meeting minutes.”

Much of a plan adviser’s fiduciary value to clients comes from “helping solve problems and identifying issues sponsors have—and maybe don’t know they have,” says Doug Prince, CEO and a principal at ProCourse Fiduciary Advisors LLC, headquartered in Carmel, Indiana. He breaks down the value to clients of his firm’s fiduciary work this way: 10% is in doing investment reviews; 20% in customizing a plan’s lineup for the demographics of that organization; 20% in documenting prudent fiduciary processes; and 50% in broader problem-solving about issues a plan faces, such as above-average fees.

“We ask sponsors hard questions that can’t be answered in one meeting,” Prince says of problem-solving. “We are getting them to think through, strategically, what they want their plan to do.” The firm’s surveys of its clients have shown they really value the instances when ProCourse initiates meetings for them with other clients facing similar issues with their plans, to discuss what works to address those problems.

Prince says adding value as a fiduciary adviser is more about looking forward than backward. “You can outline for sponsors all the things you have already done for their plan, and I think most of us do that now,” he says. “But the true value is when you can help them map out where they’re going and then help them get there.”

Art by James Yang