Savvy 401k advisors know the importance of talking about the three Fs: funds, fiduciary and fees. These three interrelated topics should be front-and-center in client meetings, your website and social media.
401k advisors must, of course, discuss funds. Understanding the client’s risk tolerance, retirement goals, and desired portfolio performance is crucial to charting a course for retirement that’s in their best interest.
The second “F,” fiduciary, is getting a lot of attention. Even prior to the DOL’s fiduciary rule, which would essentially apply a universal best-interest responsibility to the industry, good advisors were trying to do their best for their clients.
Now, there’s a greater focus on fees and fee transparency. How are 401k advisors paid? Who pays them? What is a reasonable fee structure? Most reasonable people hope for a win-win scenario in which clients pay reasonable fees and advisors are compensated fairly.
How do you stand out?
While the three Fs tend to be the focus of conversations between advisors and clients, here’s the rub: if everyone is talking about the three Fs, how can advisors differentiate themselves? If advisor conversations, especially with clients, revolve around only the three Fs, what added value does an advisor bring? What can one advisor do that other advisors don’t?
The answer lies in moving up the alphabet from three Fs to the two Es: engagement and education. 401k advisor-client conversations that extend to engagement and education nurture a relationship built on trust. When advisors embrace the two Es, clients know instinctively that the advisor has their best interest at heart. As a result, clients are motivated to follow the advisor’s recommendations and remain loyal to their advisor for years.
Engagement means speaking about the issues that matter most to clients and doing it in a way that connects with them. Advisors can talk all they want about asset allocation and contributions to a retirement plan, but clients really want to know how much their take-home pay will be.
If they increase their contribution, can they still comfortably support their family? Will they have enough income in retirement? Engagement doesn’t happen when all the client hears is what the advisor thinks is important. Engagement happens only when the advisor speaks to the clients’ most meaningful questions. Clients will be ready to move on to topics like asset allocation only once they feel their advisor has engaged with them at their level.
What about the second E, education? 401k advisors motivate clients to take action only when they focus on education—not sales. Advisors must spend time illustrating the projected outcomes of various scenarios, hearing the client’s input, testing variables, and talking about why some scenarios are better than others.
Clients will be grateful for their better understanding of the retirement planning process and how the pieces fit together in their particular plan.
How do the two Es build trust between clients and advisors? Engaging clients means not only listening to clients, but also hearing them. It means understanding clients’ questions and concerns, and addressing them first. Clients know that the advisor understands where they are coming from and wants to answer their most important questions. When clients hear their answers, their more willing to discuss other topics, like funds and fees.
Advisors who take the time to show clients why a particular scenario or product is in their best interest are engaging and educating clients, rather than merely advising them. This builds trust. Educated clients are more likely to act on the advice offered by their advisor.
Rather than creating a plan and presenting it as a fait accompli, advisors should educate their clients about why the plan works. Armed with a better understanding, clients will be more inclined to follow through with the plan.
So don’t get stuck on the three Fs. Move up the alphabet to the two Es. As you build trust with your clients, you’ll build your business as well.
Edward 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.
