It’s easy to see why many advisors who are already committed to the retirement space might be eager to further expand their defined contribution (DC) plan business.
Driven in large part by demographic shifts, DC assets continue to grow at a rapid rate (5% to 6% per year), with recent projections by Cerulli Associates placing total DC public and private plan assets at more than $9.3 trillion by 2019. That represents a massive market opportunity for advisors who have already taken steps to establish a retirement business and are not starting from square one.
Before rushing headlong into expansion mode, however, retirement-focused advisors need to think carefully about both how they will expand and what their value proposition will be for clients and prospective clients as they grow. The most successful retirement plan advisors are those who can scale efficiently and profitably while delivering better outcomes for plan participants.
Depending on the maturity of an advisor’s practice, the recipe for success might differ slightly. But here are four factors that advisors should take into account as they look to extend their retirement businesses.
1. Client Segmentation
One of the keys to growth for any advisor is client segmentation, and the retirement business is no exception. Having a good understanding of the clients you serve, and which of them are most profitable (or have the potential to be most profitable) is a critical first step to any expansion plan. While it’s tempting for advisors to think about their largest clients as being their most important clients, they need to closely examine the resources they are dedicating to service the plan or plan participants.
Servicing a larger plan for a manufacturer, for example, may require more frequent and more intensive onsite plan participant education than a smaller plan for a medical group or professional services organization.
The most successful advisors segment their retirement plan clients by a number of criteria, including revenue, assets and the types of services provided. This allows them to focus on providing more targeted, customized solutions to their most profitable clients and emerging clients.
2. Communicating Your Value Proposition
Once advisors have a better understanding of client profitability, they need to think about how they can best serve each of the segments most effectively, and how they communicate their range of services to each segment.
For some high-value, high-touch clients, those conversations may be easier, as they are likely to receive more direct communication, personal attention and added services. But for clients on the lower end of the profitability scale, who may now receive a more basic menu of services, advisors may need to showcase the value they provide differently to guard against the perception that they are taking away services.
For example, advisors who wish to shift from regular face-to-face meetings with less profitable clients to teleconferences can position it as an opportunity to open a new avenue of communication, save valuable time and deliver services in a more turnkey way. Technology and the increasing proliferation of new methods for communicating remotely with clients via tablets, smartphones and desktop computers can be important enablers for this shift.
For retirement advisors involved in regular plan participant education sessions for geographically distributed organizations electronic communication can also help reduce the time spent and cost traveling to meetings, allowing them to focus more attention on the critical business issues of strategy, performance and growth.
3. Expanding and Leveraging Partners
Advisors looking to expand further into the retirement space will also need to think about how they expand their operations. It could involve the addition of new retirement personnel, additional training for existing staff, using outside partners or outsourcing certain operational functions. Those who resist embracing a truly integrated technology platform may be missing out on an opportunity to not only generate operational efficiencies, but also transform their practices. Advisors should think deeply about which processes are core to the services they provide to their retirement clients, and which are either too costly or too onerous to manage in house.
For example, advisors might choose to ally themselves with plan service providers who can add expertise in plan design, or leverage technology providers who can package recordkeeper access with integrated tools, so that they can spend less time with operational tasks and more time interacting with plan sponsors and participants. In addition, outsourcing administrative tasks or designating members of the internal team to work with plan participants can free up advisors and allow them to dedicate more face time to their most profitable clients.
4. Fiduciary Governance and Regulatory Responsibility
Particularly in today’s evolving regulatory environment, advisors also need to closely align their service model with a well-defined fiduciary governance process. The ability to deliver a sound plan and fiduciary governance model can help the advisors differentiate their offerings and assist plan sponsors in fulfilling plan fiduciary responsibilities.
An important factor to keep in mind is that as with any prudent process, advisors should have a well-defined set of deliverables in support of their role to the plan, whether they are serving as a plan fiduciary, investment consultant or plan advisor. It’s essential to define this role from the outset and provide regular reviews as part of the process.
Additional deliverables to help plan sponsors with their fiduciary responsibilities include investment policy statements, investment plan review and ongoing investment monitoring, plan design and documentation review, fee review, plan compliance and plan health checkup to determine if the plan is performing as designed. Fiduciary services can be complex, and depending on the role the advisor chooses to play, the use of service providers such as plan recordkeepers, third-party administrators and retirement plan tool providers may be the way to go.
By focusing on these four core areas, advisors can support the needs of their clients, grow their retirement practices more strategically and put themselves in the best competitive position to profit from the growth to come.
Marc Caras is a Director at Pershing, a BNY Mellon company. In this role, he oversees the strategy and development of its retirement plan market business. This includes Pershing’s Retirement Plan Network, an open-architecture platform for the sales, service and custody of retirement plans. Marc has more than 20 years of experience in sales, client relationships and product and program management across the institutional retirement, investment advisory, broker-dealer and financial advisor marketplaces.
