How to Maintain a Strict 401k Participant Focus
“Clients are looking for the advice and counsel of a fellow human being.”
Douglas Parker heard it from a former boss at the beginning of his career, and it’s stuck with him in the 34 years since—a constant guide for him and his team at Rochester, N.Y.-based Sage Rutty & Company.
“He wasn’t speaking specifically about 401(k)s. He was talking about general investment guidance,” Parker explains. “Our industry has become more focused on the pursuit of profitability and legal defenses. We remember that people are really looking for the advice and counsel of a fellow human being, and that’s what we focus on. People aren’t looking for a Web address, they’re looking for guidance and education so they can make important choices. Everything we do is built around that.”
That singular focus is responsible for enrollment rates in mid- to upper-80% and deferral rates between 7% and 9%, an average that includes people who don’t participate. Parker believes non-participating employees are often ignored in those calculations.
He put that insight into action by hiring an enrollment specialist early on, whose job is to meet with every eligible participant individually for some personal financial coaching.
“People don’t come to work in the morning and say, ‘How do I sign up for a 401(k) plan?’ Somebody has to sit them down individually. I firmly believe people will use the tool when they understand the tool, and they will understand the tool when someone explains it to them.”
An obvious and ongoing question is how to cost-effectively scale that one-on-one time and dedication.
“I’m much less concerned about cost-effectiveness than I am about the impact,” he says. “We make money and it’s a profitable business for us. But my perspective is that if the if a 401(k) professional comes in once a year and does a “stand up” in front of 100 people, they’re a sales guy. If a 401(k) professional is in the shop and you see them six or seven times a year, they’re no longer a sales guy, they’re a part of the team.”
A good salesperson can make a good living in the 401(k) industry, Parker argues, but someone who transcends sales through guidance and education can make an impact, have more satisfaction, and ultimately make an even better living.
“It’s a circular calculation,” he notes.
A heavy emphasis on career-long (and lifelong) education means the CFP® is ‘table stakes,’ and Parker encourages the team to pursue other degrees and designations to ensure they’re always at the forefront of the industry.
He also proudly points to the firm’s Centre of Fiduciary Excellence (CEFEX) certification, which he refers to as the “Good Housekeeping Seal of Approval.”
“I tell clients that I’m not alone when I say that their plan is meeting the highest fiduciary standard. The Center for Fiduciary Excellence has put our practice through their ‘ISO 9000’ review and awarded us their CEFEX Certification. This further illustrates our commitment to being on the leading edge of our industry.”
Claiming he’s amazed at how misunderstood investing is in this day and age—either by a CEO or frontline worker on the factory floor—Parker drilled his process down to two simple points that, again, involve a former employer.
“When I first signed up for a 401(k) plan 34 years ago, I asked my boss, No. 1, ‘If I save in a 401(k) plan, will I have beer money at the end of the week (meaning what’s the impact of my take-home pay)?’ We have custom-built software that illustrates that point for every single participant—to the dollar. No. 2, if I save 5% of my pay, what does that create for a bucket of money when I retire?”
The custom software can show participants the impact of small savings over a long period, and what compounding interest can do for a portfolio.
“If they’re making, say, $42,000 a year and save even 5% in the 401(k) plan, we show the impact on their take-home pay in real dollars, and 30 years from now what that $28 a week will equate to,” he concludes. ‘They always say, “Really, that’s all it costs?’ People don’t typically make that connection until you personalize it, and then it’s usually, “Heck, I can afford that.”
Douglas Parker, CFP®, AIF®, CHSA® is Senior Vice President and Financial Advisor with Sage Rutty and Company, Inc.