From the October 2015 issue of 401(k) Specialist magazine.
AS EXPERIENCED 401(k) ADVISORS, time is one of our most precious commodities. We spend a significant portion of our day and week meeting with plan sponsors and participants. We also prepare, review, research and assemble the information found in the quarterly monitoring reports, and determine the advice we provide to the plan sponsor.
How we gather the information, input the data, “crunch” the numbers, analyze the results, research shortfalls, and determine our conclusions is the most time consuming and labor intensive part of the fiduciary advice we offer.
To gain the most leverage, we must ask ourselves: What do plan sponsors actually pay us to do? Or as Strategic Coach Dan Sullivan asks, what is our “unique ability?”
As top 401(k) advisors, we must use the experience, knowledge and wisdom we’ve worked hard to develop and package specific advice based on the information available. At fi360, we describe this as a “call to action.” It is essentially our unique ability. While the plan sponsor pays us to pull the information together (and it is required for us to analyze and give advice) it is not the highest level of activity for which were compensated.
Therefore, to truly run an optimized 401(k) practice, we need to figure out how to leverage both external technology (notice I did not say build your own technology) and internal people to provide advice to as many plans as we can.
DATA INTEGRATION OF PLAN INFORMATION
Today, data integration is a key time saver. Most advisors spend significant staff resources downloading custodial statement PDFs, finding information on specific holdings and then typing in each holding’s value into the reporting software. However, there are now multiple software companies that bridge data between the custodian of the plan and your portfolio monitoring software, thus eliminating the need to manually enter holding data.
If you work with five plans, this is not big deal. However, if you have more than 60 plans, this can be a significant time-saver. Our office estimates this takes one hour for each plan. Multiply that by the number of plans and then by the number of times reviewed during the year — you can do the math.
DUE DILIGENCE CALCULATIONS AND PERFORMANCE ATTRIBUTION ANALYSIS
Most portfolio management software programs can automatically take the specific holding’s information and, with some plan specifics, calculate the fees and expenses charged to participant accounts. It can then benchmark these fees against an established database of similar plans.
If set up correctly, the software also can automatically calculate the due diligence process on all of the investment options and automatically identify any fiduciary shortfalls that require further analysis by the advisor. Many software programs allow the advisor to analyze these shortfalls, document any further research and summarize any recommendations a single time to then populate each plan that has that investment option as part of its investment menu.
BATCH REPORTING AND CLIENT VAULTS
Finally, the portfolio management software can automatically “batch” reports for every plan, and even upload them automatically to the plans sponsor’s client vault (think centralized location of plan governance documents) as evidence of their due diligence file and monitoring process prior to, or after, the client meeting.
How we monitor plans on which we advise can make the difference between profits and losses. It’s the area of the practice on which we spend the most time. I have met many supposedly successful 401(k) advisors who had razor thin margins due to a manual entry process for each plan, internal software that constantly needs updating and lack of consistency between plan sponsor reports. Leveraging technology and people is a critical step in optimizing your 401(k) advisory business—one that fully maximizes profits.
Mario C. Giganti is an owner and chief investment officer of Cornerstone Capital Advisors, a fee-only registered investment advisory Firm in Ohio. He is also an adjunct faculty instructor for fi360, a contributing author of the Prudent Investment Practices for Investment Advisors and Stewards and a CEFEX Registered Analyst.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
What software are you referring to in this article, specifically the data integration of plan information. I have been looking for software to do this for 401k plans but cannot seem to fin anything.