In the financial services realm, there are retirement plans and retirement plans. Many financial advisors, prefer one, but steer clear of the other. What’s the difference? For many, it’s a numbers game. Advisors prefer working on retirement plans for an individual, or family, versus employer-sponsored retirement plans for many. But this could be a mistake for advisors looking to grow their book and business.
Defined contribution plans often grow at a faster rate due to consistent employee and employer contributions. Advisors who support these kinds of retirement plans can take advantage of a growing market and diversify their practice’s revenue stream. There’s built-in referral potential as well. Advisors working with retirement plans now have a touchpoint with employees and executives interested in saving for the future. And working with retirement plans can keep competing advisors, who do work with them, from poaching clients seeking that kind of service. Lastly, the valuation of an advisory practice often increases with a diversified client mix that includes both individual and retirement plan accounts.
Perceived Challenges
Perhaps the biggest reason advisors don’t work with retirement plans is the perceived amount of work. It’s simple math: You’re dealing with a lot of employees instead of a smaller group of clients. That can mean a lot of calls about quarterly statements or other non-advisory-related issues.
There’s also the education component. Retirement plans can require some attention from participants when it comes to fund selection or setting payroll contributions. While many retirement plan participants have a “set it and forget it” approach, there are those who take a more active role. Explaining the objectives and risk levels of available funds can take time.
Regulatory issues can also be a factor keeping advisors out of the retirement plan business. The rules governing defined contribution plans can be complex and dynamic, which requires a level of vigilance from the advisor.
Leveraging Innovation and Technology
While the above concerns are valid, industry advancements can mitigate most of those issues and allow advisors to focus on working with the plan sponsor. In some cases, that could lead to converting the plan sponsor—an owner, CEO or CFO—into a client.
There is a broader array of investments from target-date funds and personalized managed accounts to extend an advisor’s reach and offer scalable help to the masses.
Technology also makes it easier to educate participants on investment choices and provide them with access to their accounts. Portfolio changes can now be done online. Interactive dashboards can help participants visualize financial goals and their savings progress.
Successful Partnerships
There may have been a time when advisors working with retirement plans had to figure it out themselves, but today there are partners who can help ease the burden. The key is finding the right firm that will enhance an advisor’s ability to work with retirement plans in an efficient and scalable manner.
Partners who provide education tools and programs along with a wide spectrum of investment selections can give an advisor the reassurance and ability to focus on the client relationship. That increases the efficiency of managing a retirement plan while simultaneously driving revenue.
Finding the right fiduciary partner can also mean an advisor does not have to be an expert in regulations or defined contribution plans. Instead, the advisor can focus on driving conversion opportunities and strengthening relationships with existing clients.
Nearly half of workers in private industry participate in a defined contribution plan, according to a study by the Employee Benefit Research Institute. And they are saving more money each quarter. While many advisors avoid servicing retirement plans because of the perception that they are complex and labor-intensive, there are solutions available to alleviate the stress.
Finding the right partner to act as the fiduciary is one way to lower the barrier to entry and provide a growing revenue stream.
Jonathan Duggan is Senior Vice President and National Sales Manager at American Trust, an AmericanTCS business.