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Why 408(b)(2) is Still Providing Great Prospecting Leverage

While attending a small private industry event a couple of months back, I sat in on a presentation by industry veteran Don Trone. The topic of his presentation centered on retirement advisor leadership and stewardship. Throughout the session, Trone provided a number of interesting industry metrics relevant to that topic. But there was one statistic that stuck with me in particular: Over 52% of plan advisors, even after the implementation of new 408(b)(2) regulations, have not benchmarked their own clients’ plans.

While many in our industry might receive this news with a mix of surprise and perhaps even distress, from a plan prospecting and sales perspective, this statistic presents a tremendous opportunity for retirement practices looking to aggressively grow their business.

To understand just how big the opportunity to leverage fee disclosure regulations as a door opener to new prospects still is — and will be for years to come — let’s first look at the numbers.

According to industry statistics from The Retirement Advisor University (TRAU), there are approximately 150,000 FAs with at least one plan under management. The vast majority of these FAs, about 135,000, have 6 PUM each or less. This would put the average advisor who is active in the retirement plan market holding somewhere around three or four plans under management. Simply put, this means there could be more than 200,000 plans out there that still have not benchmarked their fees — and that, in my humble opinion, are underserved or lacking what many would consider basic professional retirement plan guidance.

Winning Business by Helping Employers Answer Two Questions

The understanding of 408(b)(2) regulations, plan and investment fees, and a fiduciary’s obligation to make sure those fees meet the standard of “reasonableness,” are still some of the best issues you can leverage employing a “soft sales” consultative approach to get in front of new plan sponsor prospects.
You should be leveraging this issue by asking employer prospects two simple questions:

1. Do you know what the DOL’s definition of “reasonable” is? (Hint: nobody does!)
2. Has anyone helped you to determine if your plan, investment and service fees meet a standard of “reasonableness”?

For as long as the 401(k) market has existed, retirement advisors have used the concept of “plan reviews” as a door opener to get in front of new plan sponsor prospects and demonstrate their proficiency. With comprehensive benchmarking reports available for around $300 from firms like Fiduciary Benchmarks and others, offering to provide a free plan benchmarking service as a loss leader (giveaway) to open doors, with some basic investment analysis thrown in for good measure to help plan sponsors answer those questions, is not only a sound strategy, but also provides an excellent opportunity for a professional plan advisor to engage plan sponsors in a meaningful way and draw a clear distinction in service quality and capabilities versus an obviously remiss incumbent advisor. More than anything, it is this creation of clear distinction that will win you new business.

There is almost always a cost associated with acquiring new plan sponsor clients. If you were to employ a strategy as outlined in this article, and you get in the door with 10 new plan sponsor prospects over the remainder of the year by offering a free plan benchmarking, your cost to service those prospects would total about $3,000 plus your time. Assuming you are selecting prospects with sufficient plan asset balances, and you close just 30%, would the effort be worth it? I think the answer is yes!

For more information, please visit my website or email me at [email protected].

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