End-of-the-year reviews present a unique opportunity for advisers to take credit for accomplishments, address client concerns and manage expectations for the upcoming year, said Bob Kaplan, ING U.S.’s national retirement consultant and 401(k) technical expert.
The client review is necessary to clear the air, emphasize what went right during the year and tackle what could be better. It is also important to discuss expectations for the plan from both points of view. “Sometimes people expect too much bang for their buck,” Kaplan said in ING US’s webinar, “Differentiating Yourself During Year-End Plan Review.”
First, Kaplan said, know your audience and who you are speaking with, which can take a conversation in different directions. The head of human resources is focused on keeping employees happy and communicating with plan participants. Participation rates, loans and asset allocation are key topics. The chief financial officer might have larger issues, such as how the plan performed during the year. But any company representative is also a plan participant, Kaplan pointed out. In other words, their relationship to the plan starts with, ‘How does it affect me?’
Next, obtain feedback on plan design and performance, Kaplan advised. “Use loans, contribution rules, investment options to identify any underlying dissatisfaction with the plan,” he said. Take note of major changes such as hirings, layoffs and changing participant demographics.
Plan details such as investment options deserve scrutiny. Too many investment options can create stress for participants, Kaplan said. “Sometimes in large plans more emphasis is on lowering the number of choices: participants want simplicity,” he said. “Participants want someone else to do more of the work.” If necessary, a third-party administrator can be brought in to help identify plan design points that need work, but, he said, “the adviser is still quarterbacking the plan.”
A key part of the review is reporting on participant success. “Look at your value as an adviser,” Kaplan said. One way to quantify success is to measure participation rates year on year. “That is part of an adviser’s value proposition.” It can show that education efforts are paying off. Sponsors want to see success on the participant level, because it’s a benefit. “In midsize companies, they want people to retire successfully when it’s time—not linger on past retirement age.”
In advance of the review, advisers should gather evidence of increased participation rates and contribution rates. Data can highlight an adviser’s successes or address shortfalls.
Help sponsors determine if a plan’s fees are reasonable, Kaplan advised. “Fee disclosure rules require sponsors to ensure that fees from plan assets are reasonable,” he said. “Clients should now be documenting practices and procedures. Benchmarking and a statement of services can help these efforts.”
Gather information on service provider fees and compile benchmarking or comparison bids with procedures and practices to see if fees are reasonable. “And document, document, document all fiduciary decisions,” he cautioned.
When specific goals are set with the plan sponsor, such as helping in fund selection, or increasing plan participation rates from 60% to 70%, they can be used at the year-end review to show an adviser’s value to the plan. “‘Here’s what I intended to do; here are my results for the year,’“ Kaplan said. An adviser can document through a statement of services in the 408(b)2 service provider agreement what he said he would do, what he did, and the time he spent on different services.
“Managing participant fee disclosure is a work in progress,” Kaplan said. “Many participants have not yet seen fees appear on their statements, so advisers should maintain their focus on managing participant fee expectations.” Some of the administrative fees have not shown up because they were not due in the third quarter. Issues should be anticipated and addressed before they arise.
Last, document any changes in the plan. Take this opportunity to ask about plan changes made in the last year. Discuss and review operational and plan design changes. The annual review is a chance to demonstrate value and expand business for the year ahead.