(Turn)Keys to Success for Small Plan Advisers

It’s no secret that the 401(k) market presents a wealth of opportunities for advisers.
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A quick review of the marketplace shows why 401(k) plans can be an attractive business space. Sixty percent of U.S. households reported participation in an employer-sponsored retirement plan in May 2012, according to the Investment Company Institute[i]. The ICI also found that American workers were holding $3.5 trillion in 401(k) plans at the end of 2012[ii].

401(k) Plans – An Opportunity or Administrative Burden?  

With figures like that, it’s easy to see why advisers have always viewed the 401(k) space as a market with ample opportunity. The 401(k) market offers advisers the chance to add more clients, increase AUM and, above all, work directly with plan participants toward their dream retirement scenario.

However, many advisers are hesitant of the space due to the hurdles of running a successful 401(k) practice. It’s laborious for advisers, who often find themselves filling all the roles from plan maintenance to relationship management; the administrative duties are never-ending; and for all that work, advisers may find themselves in the role of fiduciary to the plan, something few want. These seemingly unavoidable obstacles have caused some advisers, particularly those focusing on small plans, to limit their work in an otherwise attractive market.

Small Plan Advisers at a Disadvantage  

Small plan advisers are at a disadvantage when it comes to building a successful 401(k) practice. Regardless of plan size, advisers must complete the same list of tasks, including investment selection, benchmarking, enrollment meetings, and so forth. Due to the cost involved with these functions, both in time and resources, many advisers focus on retirement plans with substantially larger assets, and utilize specialists or outside consultants to make the process more manageable.

Small plan advisers who don’t want to change their overall business model, or who don’t have access to the same resources often struggle to perform the necessary functions for their retirement plan clients. Additionally, the services they provide may place them in a fiduciary role, though they may not want to act as such. All of which can prevent small plan advisers from spending time working with participants in the plan, an area considered essential by their plan sponsor clients.

According to a recent survey of defined contribution plan sponsors by Cogent Research, more than one-in-four small plan sponsors who work with advisers were not satisfied with how accessible advisers are to participants, and three-out-of-ten were not satisfied with how advisers are educating participants about the plan and its investment options[iii].

[i] “The Role of IRAs in U.S. Households’ Saving for Retirement, 2012,” Investment Company Institute (2012)

[ii] “The U.S. Retirement Market, Fourth Quarter 2012,” Investment Company Institute (2013)

[iii] “The Hidden Value of DC Advisors,” Cogent Research (2013)

An opportunity exists for small plan advisers who can dedicate more time to direct participant interaction and service. To do so, however, would require a shift in how small plan advisers have traditionally handled their 401(k) business. Advisers are increasingly looking to turnkey administrative solutions that offer relief from time-consuming activities and remove them from the fiduciary role in order to create more time for participant interaction and services.

Nuts and Bolts of Turnkey 401(k) Solutions  

These increasingly popular solutions often combine some aspects of third-party investment management, benchmarking reports and plan administrative support, all of which are necessary for small plan advisers to succeed. While many turnkey solutions look alike, most are not. Advisers should review available turnkey solutions for their clients and for their practice to make sure those under consideration provide the investments and services that meet their collective needs.

Three essential components that should be reviewed in any program are:

§  Third-Party Investment Management – The selection and monitoring of an investment line-up usually places the adviser in a fiduciary role for the plan.  Additionally, it’s a time consuming process especially when factoring in the need to establish review criteria and document a regular review process. A key consideration for advisers and their clients is the level of fiduciary coverage available with a turnkey solution provider. Not all offerings are created equal and may include varying levels of fiduciary coverage, but some options exist where the third-party manager assumes a significant portion, if not all, of the investment fiduciary responsibility and accepts liability for investment option decisions.

§  Benchmarking and Analytics – Managing the investment lineup for a client’s plan isn’t the only task that can be incredibly time consuming—benchmarking is another necessity that can divert time away from providing participant services. In a turnkey program, advisers may be offered benchmarking services to ensure clients are being offered high-quality funds and services at a reasonable cost. Benchmarking provides a value-added service and helps to reassure clients that advisers have their participants’ best interests in mind.

§  Administrative Support – An adviser’s goal is to help plan participants prepare for a dream retirement, not to spend hours upon hours of time managing compliance and regulatory requirements. While it’s impossible for advisers to completely avoid paperwork, turnkey solutions can make the overall process more efficient. Most programs offer a single point of contact for advisers to expedite questions, an easy or pre-filled enrollment process, or a variety of other back office activities. Streamlining the support process reduces the burden advisers face and turns a 401(k) plan from a questionable value proposition into an opportunity to increase participant interaction and grow their practice.


Putting Participants Back in Focus  

Leveraging turnkey solutions enables advisers to return their attention to the single most important aspect of all 401(k) plans—the participants. The more free time advisers can generate on the back-end, especially by lessening the administrative burden, the more time can be devoted to working with individual participants, gaining new retirement plan clients, contacting referrals and cross-sell opportunities.

Turnkey solutions may provide win-win scenarios for advisers looking to build a thriving 401(k) practice—more free time for participant interaction and a better business model all in a single, easy-to-use offering.   


Kevin Watt, AIF® and Vice President of Defined Contribution Markets, Security Benefit

For more information about this topic please contact Security Benefit at 800-747-5164, Option 6.


Services are offered through Security Distributors, Inc., a subsidiary of Security Benefit Corporation (Security Benefit).