Bob Francis has a rich history in the advisor sold DC market. Francis headed up the retirement group for the record keeper now known as Voya before moving on to partner with Bill Chetney at NRP, where he helped sell the firm to LPL. These days Francis is an independent industry consultant.
When we caught up with him recently, we asked about what changes he saw coming in the next few years and how advisors should adapt.
“The mega DC market is better than ever, in large part due to litigation,” Francis notes. “It’s as efficient and effective as it has ever been — which is not true for smaller DC corporate plans.” According to Francis, the three major issues facing the advisor sold DC market include:
- Coverage — which Francis acknowledged is being addressed.
- Deferral rates — which he says need to be at double digit rates.
- The inefficiencies of the small market.
“Small corporate DC plans are too expensive and are hugely inefficient. They need scale, which could be achieved by MEPs or large 3(16) service providers,” Francis observed, recommending that, “Advisors who moved up market should be looking down market where the margins are better. But they need scale leveraging mass customization.”
This leads to the question of how many advisors either employ a professional business manager or have been formally trained to act as one. “That’s why NRP was so attractive to advisors," Francis says. "We brought them efficiencies and best business practices. Most advisors don’t professionally prospect or build their businesses, relying almost exclusively on referrals and following HR and finance professionals as they move from one job to another. That’s not business building.”
Which leads us to deferral rates. Francis agrees that the only way to move the needle on participant outcomes is through the auto or “ideal plan” leveraging behavioral finance principals. “Wouldn’t it be interesting if advisors required all of their smaller plans to adopt the ‘ideal plan’ rather than take all business that comes their way,” he said. (Try asking Southwest Airlines for a first class seat.)
According to Francis, savvy advisors of the future will become smarter business people with better business building or prospecting skills — moving down market by leveraging scale and creating a one-size-fits-all “ideal plan” model that will result in higher profits for the advisor and better outcomes for plan participants. Now that sounds like an opportunity.