In such a competitive playing field, how can 401k advisors or advisory firms differentiate themselves? Think about it, over the past 20 years, the number of 401k plans has increased dramatically—and so has the number of advisors seeking to provide advisory services to plan sponsors. With so many 401k advisors offering services, plan sponsors have the luxury of being more discerning as they select their plan advisor.
Below are five ways in which advisors and advisory firms can provide additional value to plan sponsors and differentiate themselves from the competition.
No 1: Make it easy for the plan sponsor to understand the advisor’s compensation and plan fees.
As the media and regulators increasingly scrutinize advisor compensation and the fees associated with retirement plans, advisors would do well to make their compensation and fee structures as transparent and easy to understand as possible. As more lawsuits are filed against employers, especially regarding excessive fees, plan sponsors will be leery of hidden fees, additional fees, and conflicts of interest. Don’t make them guess. Be proactive and provide the transparency that will put them at ease when communicating with employees.
No 2: Provide the plan metrics that plan sponsors really want and need.
Many plan sponsors genuinely want to see their employees succeed in saving for retirement. They want to know that their plan is helping employees to save. Advisors should be able to provide valuable plan metrics such as participation and deferral rates, average balances, and projected retirement readiness. Advisors who report historical and current metrics can demonstrate to plan sponsors how the metrics have improved over time and how employees benefit from the advisor’s services.
No 3: Provide meaningful participant education.
Many 401k advisors—and participants—dread participant enrollment meetings. If an advisor routinely speaks to participant groups who spend more time looking at Facebook on their smartphone than listening to the presentation, it may be time to change the information being presented. Many 401k advisors talk about asset allocation, plan fees, and contribution percentages—but these are not the topics of greatest interest for participants.
Meaningful participant education answers the questions that participants care about:
- Will I be able to retire?
- How will adequately contributing to the plan affect my take-home pay?
An advisor who can answer these questions will have a room full of engaged participants. So how can an advisor answer these questions? See Tip 4!
No. 4: Provide personalized information directly to participants.
Participants want to know whether they are on track to retire and how additional contributions will affect their take-home pay. An advisor cannot answer these questions by providing generic information. Nor can advisors expect the passive approach to work – asking participants to log into the plan web portal after the meeting. Generic information will not answer participants’ most pressing questions, and most participants do not log into the plan portal to see their own information.
An advisor can bring added value to participants by providing personalized information directly to each participant. This information should illustrate retirement projections for the participant’s current contributions as well as how increases in contributions would affect after-tax income and future retirement savings. Participants who understand how increased contributions will affect their take-home pay will be more comfortable when making decisions to increase their contribution.
No. 5: Provide industry, fiduciary, and compliance expertise to the plan sponsor.
Plan sponsors have enough on their plate without having to educate themselves about fiduciary responsibility in a changing industry and regulatory landscape. Nevertheless, plan sponsors are increasingly held accountable by plan participants for these responsibilities. Employees are bringing lawsuits against their employers. One of the cases, Tibble v. Edison International, was even heard in the U.S. Supreme Court.
Plan sponsors need help to understand their responsibilities, ensure compliance, and communicate wisely and openly with plan participants. 401k Advisors who are perceived as industry and compliance experts who provide guidance and education are able to differentiate themselves by providing great added value to plan sponsors.
Providing value-added services to plan sponsors can help advisors differentiate themselves from the rest of the pack. Even more importantly, it can also provide long-term benefits to plan participants.
Ed Dressel is president of Trust Builders a Dallas, Oregon-based maker of retirement planning software. For more on Dressel and his firm, visit www.AskTRAK.com.
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.
