Annual plan reviews are an essential part of supporting your plan sponsor clients and their participants. But they don’t have to be an overly onerous task to check off your New Year’s to-do list.
Instead, use a combination of art and science to showcase the value you bring throughout the year. One common pitfall financial professionals often make is to focus the review on the science — plan costs and the funds by the numbers. Anyone can plug numbers into a computer and obtain an output. In many ways you, as the financial professional, bring the “art” by tying the numbers to your clients’ human needs.
Successful plan reviews start with thinking about a client’s point of view and the plan’s objectives. That enables you to personalize the review process, so the client feels any challenges have been understood and addressed.
As you plan for the unique challenge of 2022 plan reviews, here are some questions to ask:
The answers to the questions above may help inform how you address plan needs by using the levers of thoughtful plan design.
Here are several plan design best practices you should consider discussing with your client if they are not already in place.
Your clients’ employees are not all the same, and neither are their investing styles. That’s why the core investment menu should be evaluated from the standpoint of how it serves the needs of what I consider the three different types of retirement plan investors:
The most common of the three investors is, of course, the “do-it-for-me” variety. That’s a big reason why the selection of a QDIA is arguably the most important investment decision a plan sponsor makes. The ease and simplicity of target date funds (TDFs) makes them good potential solutions for the “do-it-for-me” investors. But the diverse nature of TDFs makes them difficult to compare across different managers’ series. There are tools that can help, such as Target Date ProView℠, which uses Morningstar data to objectively compare series.
You don’t want to make the conversation all about costs, but you can focus on areas where you can add value. One example might be some education about the relationship between investment management and recordkeeping costs.
Isolating recordkeeping costs can help reveal hidden expenses that could cost your clients more than they expect. Solutions that provide transparent or upfront pricing can help them understand exactly what they’re paying and what services they’re getting. Emphasize to clients how all types of costs are not created equal.
Decoupling investment management and recordkeeping costs
The above hypothetical scenario considers the total recordkeeping costs of two plans. The total costs of the plans are the same — 100 basis points. But looking at the total number alone doesn’t tell the full story. Plan sponsors should also look at the components of that cost to analyze how it relates to value.
In the example, costs are divided into three types: recordkeeping services, fund expenses and financial professional compensation, with the compensation being equal in both examples.
Here are some cost-related questions you might ask:
There is a lot to cover during annual plan reviews, but we offer the following resources that may make the process as efficient and effective as possible:
Reach out to me or your American Funds representative for assistance with any of these resources.
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