Data & Research April 10, 2015

Third-Party Support Not Just for Newly Launched Firms

A quarter of independent financial advisers are currently honing and redeveloping their practices—including many established firms crafting approaches to new markets.
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An atmosphere of development and competition has encouraged practitioners across the investment advice spectrum to seek and provide new forms of third-party practice management support, finds a recent LIMRA survey. The research shows one in four advisers is “still establishing their practice,” yet 67% of all advisers surveyed said third-party business support remains a critical factor to their ongoing success.

LIMRA says there are several reasons why practice management support is more in demand now than in the past—both among established and new practices.

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“Advisers today must be able to understand and explain complicated financial products to an increasingly complex client base,” LIMRA researchers explain. “Advisers are also expected to understand and deliver the right solutions for clients of different generations and culturally diverse backgrounds, each of which has unique needs.”

Demand is so significant, LIMRA notes, that advisers may want to consider their own ability to shop out third-party services to other firms, either on a consulting basis or as a recurring service.

LIMRA says advisers commonly expressed concern over how the regulatory and compliance environment will affect them. Turning to recent regulatory headlines, more than a third of independent and career advisers anticipate a negative impact on their business if a uniform fiduciary standard is implemented (also see “Some Advisers Aren’t Fretting the Fiduciary Fight”). Most advisers with negative comments suggested a uniform standard would increase paperwork and create additional compliance costs while providing little to no benefit to clients, LIMRA explains.

“Finally, for all the opportunities technology can provide to a financial professional, it also adds a layer of complexity to running the business,” the research adds. “When companies implement new technology, they can confront some formidable and conflicting obstacles.”

Among the top challenges, LIMRA says, is resistance by staff financial professionals to technical changes, cited by 62% of companies. Even more companies surveyed (63%) said they lack sufficient internal IT resources to adequately control systems. Selecting for younger advisers, the results change significantly: 78% said technology tools for client services “was the most important sales support they could receive.” Three-quarters of young advisers also said availability of technology tools designed to simplify practice management was the most valuable support on the market.

Current industry merger and acquisition (M&A)  trends, along with the need to attract Millennial talent into the advisory space, highlight the dangers of ignoring the technical writing on the wall. In a recent interview with PLANADVISER, Corporate Insight analysts noted the recent deal between LearnVest and Northwestern Mutual could be the start of a financial industry “technology feeding frenzy” that alters the way financial services firms interact with their customers and the competition.  

LIMRA notes that advisers do not always have to find new provider partners to get new support services: Existing partners can often bring new support services to the table when demanded or requested. 

“These basic business challenges are not unique to financial services,” LIMRA concludes. “In 2013, email marketer Constant Contact surveyed small businesses and found that 59% of respondents said it’s harder to run a business now than it was five years ago. The top reasons they cited were the economy, keeping pace with technology and an increase in direct competition.”

Data & Research April 10, 2015

ACA May Mean Adviser Opportunity

As smaller businesses grapple with the Affordable Care Act, they are more interested than ever in help from advisers who understand the terms, Nationwide says.
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When Nationwide Retirement Institute set out to survey small businesses, with 50 to 299 employees, on their reactions to the Patient Protection and Affordable Care Act (ACA), it found a few surprises. First, companies said their ability to offer competitive medical benefits diminished as employees came to see their health care benefits as less attractive than those provided under government plans. To compensate, many of these businesses are increasing their contribution to employee retirement plans—and most say they need help from advisers with their benefits programs.

A few factors are in play, says John Carter, president of the retirement plans business at Nationwide. “First, the employees have more choices,” he tells PLANADVISER. “They have the employee benefit plan, or they can turn to the exchange.” As a result, the overall benefits package is a critical area for employers to examine. “If the employee chooses to go to the exchange, the company then has the salary and the retirement plan to focus on to recruit and retain staff.”

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“A company’s health benefits package once proved to be a deciding factor in where employees chose to work. With health care now available on the open market, it’s harder for employers to separate from the pack,” Carter says. “Today’s job prospects will look for employers that provide them the greatest amount of total compensation. That includes those who match a higher percentage of what they will invest into a company retirement plan.”

Slightly more than two-thirds of employees in small businesses (64%) already see their health benefits as less attractive than what they can find on the open market. Carter points out that this option was not as attractive before the ACA, which made it illegal for insurance companies to turn down people for pre-existing conditions in non-employer-sponsored health care.  

Small businesses are increasingly turning to financial advisers for assistance, Carter says, noting this is unsurprising when you look at small businesses and the role of medical benefits in retaining and keeping employees. “Forty-four percent of small-business owners said the ACA is difficult to navigate,” he says, and 34% said they are not prepared to handle the changes.

Adviser Opportunity

Carter also points out that nearly half of the smaller companies with at least 50 employees (43%) have increased their contributions to the retirement plan—a mere four months into the ACA’s implementation. “It’s a clear sign they are ready to re-engage with the plan’s features, having discussions with employees so they really see the benefit of the plan,” he says. “It’s a huge opportunity for advisers.”

Those same plans, Carter notes, will be under the same ACA requirements to provide health insurance for their full-time employees starting January 1. These smaller employers have a big appetite for help, according to Nationwide’s survey: 77% of small businesses said having an adviser familiar with the ACA would benefit their company. Seventy-two percent said they’d want to talk to an adviser who is familiar with the ACA.

Advisers interested in this part of their book of business can turn to resources such as those offered by Nationwide to prepare for helpful conversations with small businesses. Among the offerings on Nationwide’s site are white papers, tools, capabilities and content from The American College.

Kevin McGarry, director of the Nationwide Retirement Institute, also notes the need for advisers to help business owners with their questions on the ACA. “Advisers will have to devise strategies that furnish further incentives to the best employees to stay with their existing companies,” he says. “Plans that allow for larger benefit contributions to certain employees will be an attractive option, as will be offering retirement benefits with greater matching contributions.”

Among the findings:

  • 67% of small-business owners believe the ACA will make it more difficult to offer competitive medical benefits;
  • 44% say a greater need exists now to offer employee benefits than before the ACA was adopted; and
  • 43% say they’ve already increased their contribution to retirement plans as a result of the ACA.

This survey was conducted online in the U.S. by Harris Poll on behalf of the Nationwide Retirement Institute between October 7 and October 20, 2014, among 334 small-business owners that have 50 to 299 employees and who are moderate/major influencers or primary decisionmakers in the selection of employee benefits for their company.

The 2015 Nationwide Retirement Institute Small Business Owners Survey can be accessed here.

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