By Deb Castellani, CFA and Bill Conrad, JD - November 6, 2019
The retirement plan industry has changed and continues to evolve (see article “Compliance-Minded Service Providers Have a Competitive Edge”) and yet the sales process for most investment providers still starts out the same way. Investment providers are still talking and leading with fees and funds during the sales process. It’s almost 2020…hello. Everyone has open platforms. Everyone wants low fees. True there’s a “new” twist because of the change in the industry, now many providers add talk about being a §3(21) or even a §3(38). But many investment advisors can’t describe §3(21) in plain English and too often §3(38) can trouble sponsors because of the "higher" fees or feeling of "giving up" control – again often because of the confusing explanation by the advisor.
Not only is the investment provider’s world changing, so is the plan sponsors. In the article “Plan Sponsors Want and Need Your Help”, it discusses how plan sponsors now want and need fiduciary education. It makes sense because in today’s day of social media and headlines, the word “fiduciary” is no longer an industry insider’s term, it’s for everyone. Also, as more and more firms have DOL examinations, they are asked directly about fiduciary training. As statistics show, plan sponsors are starting to realize they are the ones responsible for their plans.
The other thing that hasn’t changed during the sales and education process is what is handed out to the plan sponsors. Most every firm has some type of charts, graphs and fancy booklets. They are all filled with numbers, names of funds and lots of boring and legal sounding stuff. The big differentiating factor with the different firms is mostly the type of binder, folder, colors of the firm or the logo. Even the disclosures are the nearly the same. Needless to say, plan sponsors are not wanting to read these types of things – and we have found that many investment representatives don’t read them either.
So How Can Anyone Differentiate Themselves When Everyone Is Saying The Same Thing?
Differentiation obviously isn’t funds, fees, fiduciary status or the materials – otherwise known as the basic sales kit. So, what else is left? Golf? A good lunch? No, others are doing those things as well.
There is a lot left – for the compliance-minded provider. Especially for the providers who KNOW ERISA and care about their clients.
Here are three top things we have seen that work through our investment provider clients to help them add plan sponsors (for our TPA clients, for the fiduciary part, we have them work closely with their investment provider clients):
|1.||KNOW What It’s Like to Be a Fiduciary|
|Okay so not every investment service provider is a fiduciary, but EVERY investment person understands many of the functions of a fiduciary including the biggest one – documentation and processes.|
|2.||KNOW ERISA (Not Just a Designation)|
|Many of the providers are very knowledgeable about SEC and FINRA. In fact, most follow the law to a “t”, but ERISA investments are not necessarily the same thing. Paperwork is different, documentation is different. We have worked with many VERY COMPLIANT Registered Investment Advisors and brokers who have put themselves and their plan sponsor clients at risk from an ERISA point of view.|
|3.||KNOW How To Present|
|It’s not what you present, it’s HOW its presented. With ERISA cases making it to the Supreme Court and the Department of Labor introducing the “Fiduciary Rule”, the word “fiduciary” and the plan sponsors liability and responsibilities have made headlines and plan sponsors have taken notice.
Now HOW you present the material is important. How you talk about it is important. What you emphasize or not is important.
Remember plan sponsors are regular people. Most don’t have any formal investment experience or retirement plan sponsor training. They don’t have designations or go to investment conferences and most don’t go to ERISA conferences. They are business owners or employees working on a retirement plan as part of their normal 9 to 5 job. For most, this is not their regular job.
It makes sense that they need help. ERISA is about 460 pages and over 200,000 words. There is no owner’s manual. They (and many providers) don’t realize that running a retirement plan is like running their own investment company for their employees (participants).
This became evident when I went to help on a §401(k) plan sales call with one of our advisor clients, Casey (name changed) who was afraid of losing a plan sponsor client to the competition since there was a new owner and the owner was fairly knowledgeable about investments. At the start of the meeting, the plan sponsor knew which provider he wanted, and it wasn’t Casey. Although we advised against it, Casey was ready to discuss fees, funds, and, yes, adding §3(21) status.
After Casey's explanations about removing revenue sharing and adding §3(21) services, even I was confused. So, Casey asked if I could help explain things to the plan sponsor. The discussion then shifted to clear up some of the confusion and to start answering questions the plan sponsor NEVER asked but should have regarding their fiduciary responsibilities and how using this advisor could help mitigate these risks. Fees and funds were discussed, if only to show that they shouldn’t be the deciding factor.
At the end of the meeting, the plan sponsor was ready to sign Casey's paperwork to retain him.
In the 21st Century, it’s no longer just about fees and funds…understanding ERISA, helping the fiduciary be a fiduciary and knowing how to present the information is what often makes a difference in making a sale and helping a plan sponsor.
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