It was a busy day at Costco. After filling my cart, I found what seemed to be the shortest line and began the wait—my least favorite aspect of the Costco experience. The man in front of me didn’t have any groceries. and I didn’t think anything of it. Just as it would have been his turn to start unloading his cart, his wife joined him with one that was overflowing.
I grumbled, “That was not cool,” but he shrugged and he started putting his items on the belt. His behavior lacked courtesy. In reality, it cost me only a few minutes and wasn’t a big deal. But it felt worse.
In some aspects of our culture, line cutting in line is normal. We rarely object or think about it, but in more than a few instances, its cost is significant.
One of the clearest places to observe its damaging effect is in the relationship between 401k plan advisors and recordkeepers. A 401k-plan advisor does a lot of work to earn the business, win and maintain the account, and grow the relationship.
They engage the plan participants, provide advice (which increases their risk), meet with plan trustees, and do a lot of backend work to maintain each account. Despite all this hard work, not everyone plays on the same team.
Few (if any) recordkeepers return the favor and promote the advisor. While an advisor tells the participants to visit the portal, the portal is often silent about the advisor. The portal promotes only the recordkeeper, which seems patently unfair. But because this is how business is done, no one objects.
This relationship gives the recordkeepers a big advantage for stepping in line at a key time. As participants approach retirement, when they have the most assets, the portal can step right in front of the advisor to seize the business of the participants. Advisors watch this happen repeatedly. While this would frustrate us in most other settings, such as at Costco, plan advisors in our industry allow this to happen day after day.
This gives rise to a couple of questions. First, why do advisors continue to let this happen? And second, how can advisors prevent this from occurring? Let’s examine these one at a time.
Why do advisors let the recordkeeper step in front?
I believe advisors let this happen for several reasons. First, this is how business is done. When we see it happen in an unexpected way, we voice our objection. But, on the flip side, when it is how things have always been done, it is harder to object. When people look from the outside and see how recordkeepers step in line in front of the advisor, they can be shocked.
Why this discrepancy? Because we simply get used to the way things are done. These behaviors feel normal and comfortable, and we are accustomed to them. If we examine ourselves and our behaviors closely, we may become surprised by the way we do things, but even with that awareness, it is hard to change those behaviors.
Another reason that recordkeepers are allowed to essentially step in front of plan advisors is that many advisors primarily think of the plan sponsor’s assets and do not pay attention to participants’ assets. This mentality can result in two missed opportunities. The first missed opportunity is assets outside the plan that are unmanaged. Providing participants with an engaging education process can help them understand the benefit of rolling assets into the plan or being sure their spouse’s assets are properly managed.
The second missed opportunity is the highest account balances, which belong to those who are closer to retirement and who will be moving into a wealth management program. A plan advisor who has adopted a long-term approach and developed a relationship with the participants has prepared himself or herself to be the first person a participant will turn to when asking questions about how their assets should be managed.
Advisors may not realize the altruistic rewards of helping Middle America retire well. It is a willingness to live with a few singles and doubles, and not always try for home runs. I tell my employees that we are in the poverty alleviation business—we help advisors help Middle America retire well. As a plan advisor, you can help groups of people become better prepared for retirement and be well paid at the same time. This can make you a true hero for someone’s retirement readiness.
I have heard stories from countless advisors sharing how meaningful it has been to help regular Americans, and the joy they receive from doing this. This altruistic reward can provide a level of satisfaction that financial wealth cannot and will not bring. If you plan only home runs, you will miss out on this benefit.
Even if a plan advisor wanted to keep some of the participants around, either they would not know how to do it or it would be too much work. This aversion to creating lots of extra work has somehow made it palatable for recordkeepers to do what would not be acceptable in other areas of our life.
What can advisors do?
All of this raises our second question: Can a plan advisor methodically prevent the recordkeeper from stepping in front of them, yet not create a lot of extra work? The key to knowing how to step closer is to be aware of recordkeepers’ weaknesses and efficiently step into that void.
Recordkeepers do a great job in many areas, such as compliance, investment management, log contributions, and reporting. But they do not succeed in every area, and one of those areas is critical: Most participants are not logging into their portals, and even those who do may not know how they are doing in terms of retirement preparedness.
The whole reason a participant puts money into a 401k is for retirement, and many are unclear as to whether they are saving an appropriate amount for retirement. This weakness of the recordkeeper provides an opening and an opportunity for the plan advisor.
The recordkeeper’s shortcoming presents the plan advisor with a significant opportunity to engage the participants and help them achieve a successful retirement. Many participants simply do not feel confident about whether they are saving enough for retirement, or even what they should be doing. Participants who are contributing money to their retirement plan without knowing whether they will be successful are facing inordinate, unspoken stress. The advisor’s ability to provide them with clear answers and direction for moving toward a successful retirement is often greatly appreciated.
Plan advisors can provide these answers and guidance efficiently and easily by implementing appropriate technology. For example, many advisors use our solution to present to groups. They are able to say with confidence that before those participants leave the room, they will know whether they are on track to a successful retirement.
Note how these advisors are being proactive in addressing one of their participants’ most important questions. Rather than sending them to a portal, they’re providing clear information about whether the participants are on track. For advisors who offer one-on-one meetings, our solutions provide quick retirement gap analysis for presenting a customized retirement plan in just five to ten minutes. Over the years, as advisors continue to engage plan participants, they earn their appreciation and trust. When it is time for a participant to evaluate retirement options, the advisor is a natural, trusted person to engage in the conversation.
Given all these benefits, I believe it is time for plan advisors to stop letting recordkeepers cut in line in front of them as participants with the most assets leave the plan. This type of behavior isn’t appropriate at Costco, and it shouldn’t be happening in the business world either. By helping participants work toward a successful retirement, plan advisors are effectively stepping in front of the recordkeeper and justifiably placing themselves first in line, earning business from all the participants for a long and prosperous future.
Edward Dressel is President/Corporate Accounts Manager of Oregon-based RetireReady Solutions.