Although more wealth advisors are becoming interested in working with 401(k) and 403(b) plans as the small plan market expands due to government mandates, tax credits and pooled employer plans, most still want to focus on their wealth business. However, they may be missing out on potential relationships with participants in these plans, including the opportunity to develop relationships with “HENRYs” (high earners, not rich yet). Working with plans can be rewarding and challenging, both on a financial basis and having the satisfaction of being able to help an employer have a plan that can aid in their employees’ retirement.
So, what are ways to foster relationships with DC participants?
In our view, the workplace includes many who may seek financial advice. The plan advisor might be the first, and possibly only, financial professional that a participant will meet. Through employee seminars, plan participants may have enhanced exposure to a wealth advisor that they wouldn’t otherwise have, providing participants the opportunity to engage with such wealth advisor.
Making Connections
Opportunities to add value to the client include explaining benefits such as health savings accounts, which are triple tax-free. Moreover, under the SECURE 2.0 Act, workers with heavy debt loads can take advantage of the retirement plan match to help pay off student loans. Advisor guidance in these areas can help workers before they have money, building a relationship for when they do.
That leads to the question of how to respond to employees that have questions about their own financial situations—something that’s often not easy. Well-heeled advisors may not have the time to speak with everyone—only a small percentage will have the potential assets to be served as direct clients—but financial wellness tools and group or even short one-on-one meetings are ways to identify them.
Some third parties and partners, including record keepers, home office broker-dealers and asset managers, have tools and services that can help foster relationships. One example is the Neuberger Berman Life Events Series, designed to help plan participants make informed decisions about certain life events, including having a baby, becoming a grandparent and planning for retirement, and to help ensure that their families are well prepared and empowered financially—both now and in the years ahead. It may also be worthwhile to hire other personnel, e.g., a junior advisor, to field leads and conduct one-on-one meetings, as well as to gather critical data while connecting with the next generation. An example of a simple but useful service that your staff could perform that may be attractive to both participants and employers is to help consolidate workers’ accounts from other plans.
Weighing The Merits
The downsides?
Working with a DC plan is a low-margin business, and carries extensive potential liability, including as a fiduciary.
Like plan sponsors, advisors can outsource most of the work to third-party fiduciaries, either directly or through their home office broker-dealers, and can employ tools to help select and monitor funds, and to benchmark provider fees. Outsourcing may also result in a significant portion of the revenue having to be paid to such outsourced service providers.
In working with a DC plan, advisors would likely need to obtain compliance clearance on all marketing and communications. And certain partners may also be looking to engage or enhance their relationships with participants, potentially putting them in conflict with the advisor.
Closing Thoughts
Still, it seems that the pros may ultimately outweigh the cons. Many advisors work with at least a few DC plans, with over 60,000 generating 15 – 49% of their revenue from them, while over 100,000 have at least one plan, according to Cerulli.
Generating prospects is challenging for most advisors not affiliated with larger entities able to afford wide-scale marketing, which is why leads from larger firms are so coveted. Advisors looking to work with DC plans may find not only success and remuneration, but additional opportunities that may arise from their interactions with plan participants that appreciate such advisors’ talent, skill and value-add. Advising DC plans takes commitment, dedication and a high standard of professionalism, but these distinctive qualities best allow top advisors to demonstrate how they stand out.
