It’s all about the upgrade—house, phone, and sometimes sadly (or not) spouse. It’s human nature to wanna climb the wall and get to the next level; even more so for advisors, we’re in sales.
So how does it work in the 401k RFP process? How do advisors successfully go from servicing retirement plans with $5 million in assets to getting a shot at $50 million, $500 million or a billion and above?
These were questions asked and answered at a recent study group of top retirement plan advisors in idyllic and out-of-the-way Kohler, Wisconsin, hosted by consulting and advisory services firm Sheridan Road.
They all agreed it’s more art than science (with luck thrown in for good measure), but it doesn’t mean there aren’t concrete steps that advisors can take to win the business.
It begins with the “gimmies,” which are welcome but rare.
“The HR director of a pretty big current client, north of $200 million in plan assets, left and went to an even bigger company with $600 million in assets,” said Jessica Ballin, principal of 401k Plan Professionals in Edina, Minnesota. “It’s a direct plan with the provider, and she just experienced her first 401k meeting. She realized the value we bring to the table and called us to say they need help.”
One of the most important things to realize when punching up in the RFP process is that while the competition is different in, say, the over $50 million market versus the under, the needs are the same (mostly), at least according to Sheridan Road CEO Daniel Bryant.
“We recently pitched final-round presentations on plans with $240 million, $280 million and $850 million in assets,” he explained. “With the over $50 million market, you’re competing against institutional consultants who are often exempt from a licensing standpoint, and it’s a totally different ballgame. But clients are just people. A $10 million plan is no different than a $200 million plan. The latter might be a little bit more complex, but they’re confronting many of the same issues.”
Bryant referred to a retirement plan RFP the firm received in 2007. It was for the Commander, Navy Installations Command (CNIC) a division of the Department of the Navy responsible for performing custodial, laundry, food service and similar readiness tasks.
Even though CNIC had $2.5 billion in assets, Sheridan Road staff quickly realized their problems were evergreen and therefore similar to those of smaller plans. The committee didn’t really understand how the RFP process worked and they were looking at total retirement outsourcing (TRO), yet didn’t know what it meant.
Bryant and crew embarked on a six-month education and preparation project for the company as part of the proposal, spending an inordinate amount of time and resources for the prospect’s benefit, only to not get the business when all was said and done.
Didn’t matter; it was time and resources well spent and a valuable learning experience for the firm.
“We didn’t actually win the Navy plan, but it accelerated the education curve significantly,” said Sheridan president Jim O’Shaughnessy.
So much so that it gave them the confidence to go after larger accounts. The result was a successful bid for the retirement plan of a large retail chain. It stemmed from the knowledge gained with the Navy project, proving that loss leaders in the 401k business exist for a reason, that a defeat can quickly turn to a victory and opportunity comes from anywhere.
However, Bryant added that the diversification of skill sets is critically important.
While many of the needs are the same as their smaller-plan counterparts, there are more of them, and they’re more complex. Therefore, areas of specialization are required like executive benefits, private wealth, multi-family office expertise, financial wellness solutions and more.
The ability to confidently offer those services is a major differentiator in getting to the aforementioned next level.
“If you step back and ask them, ‘What is your long-term, 5- or 10-year plan for your company and employees’ retirement strategy?’ that’s a much different conversation than simply saying, ‘I want to be your 401k person.’
An international aerospace organization is a client of ours. You can’t win a client like that if you are not able to integrate all of those conversations. We only have 50-some odd people, yet people think of us as a larger firm because we have that breadth of service.”
And like stuffing a middle-aged “dad bod” into skinny jeans, plan sponsor growing pains are also an issue which, if properly addressed, can pay off big.
“What I found is that clients with between $100 million and $500 million have grown up, in that they were once $50 million plans, and they’re still being run like a $50 million plan!” said Larry Deatherage, principal of Retirement Benefits Group in San Diego. “Having the experience with a lot of the larger plans means you know what needs to happen at that point. In my opinion, the larger plans are easier. They might have unique needs, but at that point they also have staff. When you go in and talk to them about the fiduciary aspects of what we do, they get it.”
Bryant agreed, noting that Sheridan recently competed with an advisor who had a $5 million client that, through acquisitions, now has $125 million in the plan.
“He was charging a fortune and basically giving them a one-page report in every meeting. Committees are waking up and becoming more educated and a lot smarter about what they need. As an industry, we’ve done a good job of educating them, especially those that are more sophisticated, about what they should expect from us in term of fees and deliverables. We’re seeing a lot more companies that have grown up with a small advisor say, ‘Hey, I need to step it up and find a succession plan for that guy.’”
Translation? Don’t be that guy.
“It’s amazing to think that with a plan north of $100 million in assets, you just assume that somebody is watching out for the fees, but no one is actually doing it,” Ballin added with exasperation. “Sometimes the $10 million plan with an advisor looks better than the $100 million plan without an advisor.”
Not surprisingly (and somewhat shamelessly) a plug was given for the value study groups like the one in Kohler offer.
“We’ve had deals done and referred business and had business come back to us and it’s been all over the place,” O’Shaughnessy noted.
“We’ve actually partnered on a $450 million-dollar plan and it’s phenomenal,” Deatherage quickly added.
However one gets to the next level in the RFP and referral process, there’s only one right time to do it—now. It might sound like a riff on the classic Nike motivational brand, but it actually refers to the macroeconomy and recent market performance.
Sunny skies mean plan sponsors are more open to ideas, allowing 401k advisors creative room to attract attention and swim upstream. But with so much political and economic uncertainty, who knows how long it will last.
“As an economy improves, heads of HR and CFOs aren’t worried about the immediate state of their affairs,” O’Shaughnessy said.
“They can think longer-term, which is one reason why you are seeing this whole [financial] wellness wave occurring. It’s not about, ‘Hey, how do I survive the next year?’ You go through phases economically where you have a great idea and it’s just not going to resonate. They can be more forward-looking, which is always a fun time for advisors and consultants.”
Speaking of the financial wellness wave, Bryant noted employers (and advisors) have focused almost exclusively on health care over the last two decades, while ignoring the financial care aspect.
“Companies and individuals are spending an average of $1,500 a month between employer and employee on health care, while they’re spending zero on financial care per month—goose egg,” he said, making the proverbial zero with his hand. “When you have that conversation with the committee or company, they get that. They say, ‘Yeah that doesn’t make any sense.’”
He added that 75 percent of Americans are experiencing some level of financial anxiety each month and cited a recent report from American Century Investments that found employees not only want, but expect their employer to provide some sort of financial guidance.
Helping employers to in turn help employees with that anxiety, which leads to less distraction and higher productivity, can also act as a competitive differentiator in the RFP process.
“If you asked that question five years ago they would’ve said I have no interest in my employer providing any financial guidance. Not so today.”
Ultimately, attracting the larger plans is about more—and offering it to avoid commoditization while nonetheless ensuring the fundamentals (investments for instance) are covered. It’s something Deatherage experienced recently when meeting with a K-12 private school in Hawaii.
“We walked in and one of the committee members said, ‘Look, we know you can do investments, so what else can have you got?’ They took the investments right off the table and were asking about our fiduciary processes, what we can do for their retirement plan participants, and that sort of thing. It was great and those are the type of clients with whom we work best. Anybody can do the investment portion now. It was eye-opening and welcome that they were actually thinking that way.”
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.
