John Ludwig worked as a wholesaler for 20 years before setting up his plan advisory practice. “Because of my experience, I probably hold wholesalers more accountable than the average advisor,” says Ludwig, a partner and the founder of Indianapolis-based LHD Retirement.
“If they come in and start talking product, product, product, I am turned off, and I probably won’t see that wholesaler again,” says Ludwig, who left wholesaling because of both the intense travel schedule and his desire to own his own business. “I am looking for wholesalers who add more value to my practice: who help me get things done, and in a way that helps my clients.”
Joe Mrozek has been in the business long enough to see changes in what plan advisors want from wholesalers. “When you look at retirement plan specialists, it’s now ultimately, ‘How can you add value to my business? How can you help make me bigger and better?’” says Mrozek, national sales manager for the Intermediary Retirement Plan Services division of Radnor, Pennsylvania-based Lincoln Financial Distributors, Inc. “The days of the wholesaler just pitching a product are over. Now, we want to be an advisor to the advisor, and be consultative.”
Wholesalers who want to build an ongoing working relationship, more than sell a product, impress Keith Gredys. “You don’t try to sell a salesperson,” says Gredys, chairman and CEO of West Des Moines, Iowa-based Kidder Advisers, Inc. “You need to develop a relationship with us, because this is still a relationship business. If you’re going to just stop in once a year to say hi, you’re not going to impress me.”
The past few years, Gredys has seen changes that challenge some wholesalers’ ability to build a substantive relationship with advisors. “A big part of what we want from wholesalers is that whoever comes here has done their homework and knows who we are, and what markets we are targeting,” he says. “With the consolidation in the mutual fund industry and on the platform side, a lot of these folks have bigger territories, so sometimes their contact with us is not as frequent. So instead of talking face to face, we might get a call. Being in the middle of Iowa, we tend to be ‘flyover country.’”
Ludwig also sees wholesalers’ territories getting bigger. “Wholesalers, I think their breed is slowly going away,” he says. With consolidation also sweeping through the advisory business, a shift has begun. “In the retirement plan space they’ll be focusing on the bigger teams, so they are not calling on the ‘onesies and twosies,’” he says. “Now, they can spend a day or two here in Indianapolis and see all the main advisory teams.”
Advisory consolidation has helped Baltimore-based Legg Mason, Inc. focus more in its wholesaler work, Head of Retirement Strategy Gary Kleinschmidt says. “As we see the aggregation happening, it’s building efficiencies for us,” he says. “We work really hard on segmentation and focusing on the top advisors. As the top advisors consolidate and get bigger, we can help the top advisors more.”
For plan advisors, think about the following opportunities to get help from wholesalers.
Data Analytics
Asked about the biggest challenges for plan advisors today, Nuveen LLC’s Brendan McCarthy points to the rapid changes in the retirement plan business. “Advisors need to stay in front of those changes, so they can help sponsors navigate them,” says McCarthy, national sales director, DCIO at Chicago-based Nuveen. “On the technology front, the biggest thing out there is ‘big data,’ and the amount of participant information now available that goes beyond just 401(k) data. Advisors are wondering, how do they integrate themselves into that process?”
Adding automated design features for their plan clients was an important mountain to climb for advisors, says Gary Tankersley, head of sales and distribution at Boston-based John Hancock Retirement Plan Services. “Once you do that – once you set people on the right path for retirement – you have to start using data to understand, ‘Now what opportunities do I have to generate a better outcome?’”
After an advisor helps a sponsor define its goals for the plan and what measures it wants to use to track progress, Tankersley says, John Hancock can utilize that to do an ongoing evaluation of which employees are and aren’t on track to achieve that outcome. For a sponsor trying to maximize participation, an analysis could break out the auto-enroll stick rate at each of an employer’s sites. “Maybe we’ll find that the employees at the Baytown (Texas) plant have an opt-out rate that is twice the rate of the Dallas location,” he says. That can lead to a targeted communications campaign, and possibly a reenrollment. “We can use predictive analytics to model, ‘This is what would happen if you make this plan-design change,’” he says. “For us, it’s about being able to capture the data, then analyze it and display it in a way that’s easy, understandable, and actionable.”
Financial Wellness
McCarthy sees a big shift to plan advisors providing a more-holistic solution for clients’ employees. ”Advisors are going from just working at the plan sponsor level to incorporating overall employee financial wellness programs that go beyond the 401(k) plan,” he says. “Participating in a 401(k) plan has been made very easy for employees. That’s not the case with other parts of their financial lives, like picking a 529 college savings plan, saving in an HSA, and repaying student loans. People need a lot of assistance there. We like to say that there’s a convergence of health, wealth, and retirement plans.”
Lincoln Financial Group introduced its WellnessPATH program in 2018, as the latest tool to help get people engaged easily and start improving their financial situation.
“There are three ways for advisors to provide those tools to their clients: We can do it for you, we can do it with you, or we’ll let you do it yourself, and we’ll be there to help you behind the scenes,” Mrozek explains. “Very few advisors today are ‘Do it for me’ advisors. Those are the bygone days of the generalist advisor.”
Today, most specialist advisors want the “Do it with me” approach to financial wellness, Mrozek finds. “It’s about, how do you want to tailor our program for your specific client?” he says. “First, the advisor sits with the sponsor and talks through, what is the sponsor looking for in a financial wellness program? Too often, people use the term ‘financial wellness’ loosely: It’s important to define the goals of each sponsor. What are the key performance indicators a sponsor hopes to see? Then it’s about, ‘Let’s map out a strategy for this program, and set goals and objectives. And most importantly, let’s monitor the program’s progress and course-correct as needed.’”
Pre-Retiree Education
With an estimated 10,000 Baby Boomers now retiring daily, doing pre-retiree targeted education has become a key value-add for many plan advisors. So MFS Investment Management offers participants and advisors its Heritage Planning resources, a suite of content that helps them prioritize and customize participants’ unique planning needs. DC advisors find the tool’s “What Keeps Your Clients Up At Night?” interactive questionnaire particularly helpful. “It’s true that most folks spend more time planning their next vacation than they spend planning their retirement,” says Todd Leszczynski, managing director of the DCIO business at Boston-based MFS. “But people are going to realize that the retirement plan they are in is not a pension plan, and they’re going to need help when they understand that the onus for their retirement income has shifted from the employer to them.”
Plan advisors need broader expertise to educate pre-retirees on the complex decisions they face. “The specialist advisor is spending more time helping educate participants to understand their retirement planning more holistically – meaning, ‘What will your needs be in retirement, and what are your expenses going to be?’” says Kevin Devine, national sales director, advisor partnerships at Columbus, Ohio-based Nationwide Retirement Plans.
The Nationwide Retirement Institute educates advisors themselves on topics like optimizing Social Security benefits and planning for retirement income in a tax-efficient way. “Timing is everything with retirement planning,” Devine says. “The Institute helps educate advisors about that, so that they can have better conversations with participants.”
To really help pre-retirees, advisors need to connect with them about more than their financial bottom line, says Cheri Belski, head of retirement, U.S. intermediaries at Baltimore-based T. Rowe Price Investment Services, Inc. “Advisors are talking with us about, ‘How can I bring more than just numbers to them? How can I talk about the emotional preparedness that they have to do for their retirement?’” T. Rowe’s “Visualize Retirement” tools aim to help advisors talk with pre-retirees about both numbers and emotions. “You have to bring both together if you want to have a fully informed approach to a retirement strategy,” she says. “This provides advisors a set of materials to do workshops with pre-retirees that give them a more holistic view. We see wealth advising and retirement advising morphing together in so many ways.”
Thought Leadership
As a long-time plan advisor, Gredys doesn’t need to hear from wholesalers about their basic tools for advisory work such as investment due diligence. “If you knew us, you’d know that we already have an extensive due-diligence process that we’ve developed – and it’s probably better than yours,” he says. “It’s very much appreciated when they come to us with a new idea.”
Time is money, as Gredys says. “So we want somebody who comes to us with something different than what we already have. We’re interested in the leading edge, and thought leadership,” he says. He likes new ideas in areas like plan benchmarking and investment analytics that could add to what Kidder Advisers already does.
Legg Mason collaborates with advisory firms on thought leadership like white papers. It also has developed an “Anatomy of a Recession” toolset that helps advisors talk with plan sponsors about the current U.S. economic and market outlook, and the possibility of a recession in the next six to 18 months. It includes a “Recession Risk Dashboard” chart that uses simple visuals to compare the state of 12 key business and market indicators in the current month versus the previous month. “Think of it as a scorecard that helps advisors explain where we are in the market cycle right now,” Kleinschmidt says. “The dashboard allows an advisor to make a complex market overview really simple to explain to plan sponsors during quarterly investment reviews. There’s a lot of noise in the marketplace, and sponsors need their advisor’s help and guidance to understand.”
Ludwig enjoys providing his own thought leadership to wholesalers when he hears about new tools and services, before they go live. “I like it when they tell me, ‘Here’s the new products and services we’re planning on introducing in the next year: What’s your input?’” he says. That could include things like new financial wellness tools or alterations to the participant website experience. “Once it goes live, it’s hard to change,” he says. “But if you get to give your input before then, you feel like you’re a part of helping them build it.”
Business Development
With many of their plan clients now using automated design features and a lot of participant assets staying in default investments, advisors’ needs from wholesalers have shifted more to getting help on broader business development, McCarthy says. “In the past, wholesalers helped plan advisors with their work purely on 401(k) plans,” he says. “Now they are wondering, should we expand into advising on other areas? Advisors are looking at their business more as a CEO now, and their wholesalers can help them with that.”
Some independent plan advisory practices, responding to the big retirement wave starting, now want to have a division that works with individual clients. “Over the past 10 years, so many advisory firms have focused on the idea of, ‘The plan is my client,’” Leszczynski says. “Now, we are at the intersection where a lot of participants are getting ready to make the transition to retirement, and that is changing. More advisory firms are taking a ‘hub and spoke’ approach to meet or exceed the long-term needs of their clients.”
Mrozek started in the industry at Merrill Lynch more than 20 years ago, and he remembers sponsors setting strict boundaries then to require that advisors only discuss the 401(k) plan with employees. “That has turned 180 degrees, and now employers want advisors to talk with participants about their full financial picture,” he says. “You always had traditional broker/dealers that, in addition to valuing retirement plan work, have been entrenched on the wealth management side. If you look at what the legacy institutional consulting firms are doing now, they are moving beyond being only ‘3F’ plan advisors that focus on funds, fees, and fiduciary governance. They still focus on those things, but now they’re looking at also doing the same holistic work with individual clients that broker/dealers have been doing for decades.”
Internal Efficiency
Because of the consolidation happening around them, plan advisors need more support from wholesalers now, Belski believes. “The challenge is that if they are not part of these large advisory firms, that’s where they need a sales consultant’s help to tap into that wholesaler’s resources, to stay competitive.” For example, T. Rowe Price helps advisors with resources like third-party benchmarking tools.
The current fee compression means plan advisors need the internal mechanics of their business to run as smoothly as possible. “It’s a race to the bottom on fees, so everybody has to build in efficiencies,” Kleinschmidt says. “And a good DCIO is trying to be almost a back office for the advisor.” For example, Legg Mason shares with its advisor partners the access it has to MPI Stylus investment analytics software, Fi360 software, and the Advisoryworld technology platform for investment analytics.
A lot of plan advisors have now been in business for 10 or 20 years and have built a significant book of business, but haven’t analyzed the profitability of their clients, McCarthy says. “So at Nuveen, we offer our ‘Plan Profit (k)alculator’ tool: Advisors can plug in data on a specific plan or their whole book of business, and it will analyze the profitability. It will identify where they have a plan that is efficient to service, and a plan that is inefficient to service: And when it’s inefficient, the analysis will offer suggestions on how to change that,” he says. Some advisors also use the tool to analyze a potential new plan client, to figure out how to bid on the business, he adds.
MFS works with advisors to help grow and scale their businesses as well, which even includes topics such as optimizing their team structure for efficiency, Leszczynski says. “We are helping them ask questions like: What is working about the team structure they have in place, and what is not? How are the different personalities in their practice working together?” he says. MFS partners with a third-party business consultant that can give advisors better insight into the personality types and communication styles of their team members, he adds.
Value Proposition Positioning
The advisory practice consolidation that has started means advisors need to think more deeply about their competitive positioning, Leszczynski says. “A lot of the talks we’re having with advisors are based on helping them think through, ‘How can I differentiate what this advisory firm does for our clients?’” he says. “We are working with them to help them better articulate their ‘advisor alpha,’ their value proposition.”
These days, MFS also talks a lot with advisors about their advisory practice’s fees, Leszczynski says. “A lot of plan advisors are going to market and finding opportunities, and then their competitors undercut their fees,” he says. “So they are wondering, ‘How can I effectively articulate what I do, so I can be compensated fairly?’ Developing a very transparent ‘fee philosophy’ that you can take to your clients and prospects is critically important.”
For an advisory practice that wants a wholesaler’s help on improving its value proposition, it’s important to spend time together to build a relationship and share enough information so the wholesaler can understand that practice’s key business needs, Nationwide’s Devine says. “On a regular basis, we want to have a strategic business discussion with advisors,” he says. For instance, does the practice want to deepen its relationship with participants, or focus more on plan-level work and outsource most education to a plan’s recordkeeper? “It’s all about what they want to leverage from us as a provider, and what they want to do themselves,” he says.
Peer-Group Trends
Wholesalers know a lot about how other plan advisory practices approach their work. “Quite often we get the question from advisors, ‘What are the best practices you see at other top advisory groups?’” Devine says.
Product still matters, but the days of showing up in an advisor’s office to just talk about a product and give the advisor a fact sheet are gone, T. Rowe Price’s Belski says. “Because so much is going on around advisors, and everything is changing, that can bring competitive pressures,” she says. “We find everyone is interested in competitive insights, to learn about trends happening in their advisory peer group. Everybody wants to know what the Joneses are doing.”
As the business changes, wholesalers have evolved to become a business consultant to advisors, Tankersley says. “With our broad perspective, we can ‘compare and contrast’ and help you understand other advisory firms’ approaches,” he says. “That helps an advisory team build their own ‘moat’ around their business.” He likens it to how John Hancock identifies for participants a personalized “best next step” they can take to improve their outcome. “It is almost like we’re helping advisors with their best next step,’” he says.
The consulting can include talking about consolidation options for advisory practices. “On our end, we’re plugging into the consultants working on mergers and acquisitions in this area,” Tankersley says. “We’re asking these consultants: What kind of strategies are they seeing advisory firm deploy? And what do they think the business is going to look like in three years, or five years, or 10 years? That way, we can have a little ‘inside baseball’ to help advisors think about their options.”
Judy Ward is a freelancer specializing in writing about retirement plans.
This article first appeared in the Fall issue of NAPA Net the Magazine.
