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RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 1, 2 OR 754

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

Categories
Practice Management
Help your retirement plan practice thrive in a new era
Jason Carlough
Retirement Plan Counselor

In volatility lies opportunity. Consider 2009: As the U.S. recovered from its economic crisis, some of today’s titans got their start. Venmo, Uber and Slack all began in the wake of the Great Recession.


During this same period, many businesses entered a phase of recovery and growth. New retirement plan business boomed.


Today looks similar, with certain businesses beginning to recover and grow following the early 2020 downturn. This may spell opportunity for financial professionals who work with retirement plans. Here are some tips that can help you find new business and deepen existing relationships post-COVID-19.


Understand the landscape


So far, surveys show that retirement plans have remained relatively stable in 2020.

  • A Plan Sponsors Council of America study in June found nearly 90% of employers had made no changes to employer contributions.
  • Only 5.2% were considering changes to plan design.
  • Morningstar found that only 5.6% of participants changed their contribution rate during the first quarter of 2020. 

Percentage of plan sponsors that changed contributions due to COVID-19

Bar graph indicating percentage of sponsors that have made no changes (90%), have suspended or reduced contributions (7%) and are considering a suspension or reduction (3%). Source: Plan Sponsor Council of America, June 2020. Includes matching and profit-sharing contributions.

 


At least for now, plans seem stable enough that you can direct your attention away from panic and toward growing your business.


Know your target


To find opportunities in this environment, targeting the right audience is key. We see two types of businesses emerging from this crisis:

  • Businesses on offense: They have successfully navigated the early challenges of 2020 and are in a strong position to look ahead.
  • Businesses on defense: They are still in a survival phase, focused on the near term.

Direct your efforts toward the offensive players. They may be your best opportunity.


Which businesses are on offense?


In March and April, most business owners focused on a few top priorities:

  • How do I meet payroll? 
  • How do I navigate the Paycheck Protection Program? 
  • Do I need to furlough or lay off employees? 
  • Do I need to change my business model to survive? 

While facing challenges of this magnitude, business owners weren’t necessarily interested in discussing their retirement plans, much less opening new ones. We saw proposal activity drop dramatically during this survival phase.


Some industries remain especially hard-hit, such as leisure and hospitality. However, many businesses have emerged from this phase and are now on offense. They can think about the longer term, which is why they should be your target.


Check in before you step in


Start with your existing book of business. Identify owners and executives of businesses that are more likely to have experienced some recovery.

  • Call these contacts to check in. Ask thoughtful questions to find out how they’re faring. Have they met the early challenges and are ready for more strategic conversations? 
  • Be delicate and supportive. Practice the art of relationship management to approach difficult questions about a difficult time. One tactic is to anchor your questions to a positive point. For example, you might say, “I noticed your sector has experienced some recovery. Where are you and your team as it relates to the recovery?” This gives the business owner an opportunity to confirm or explain their situation.
  • Do the same when prospecting. If business owners are still in survival mode, they’re probably not fruitful leads at this time. Set a reminder to follow up in a few months.

CARES Act education


When the Coronavirus Aid, Relief, and Economic Security (CARES) Act was in its infancy, a spate of webinars rushed to educate financial professionals about its provisions. Have you shared that knowledge with sponsors?


For example, do they need help revising their plan documents to reflect CARES Act changes? Have they talked to participants about how loans and early withdrawals can affect their retirement savings?

  • If you haven’t yet, offer education and guidance. 
  • If you have, check in to see how it’s going and if they need help. 

Share of plan sponsors that have informed participants of the impact of loans and withdrawals on retirement savings

Bar graph indicating percentage of sponsors that have informed participants (32%), have not yet but are working on it (18%) and have not (50%). Source: Plan Sponsor Council of America, June 2020.

Evaluate your investment lineup


COVID-19 served as a stress test for plans. Look at whether your investment results met expectations during the downturn and subsequent recovery.

  • Did the core bond funds in the menu provide the stability sponsors expected in an equity-market downturn? 
  • How did the target date funds fare, especially those closest to the retirement date? Use a tool like Target Date ProViewSM to compare glide path, risk, returns and expenses across target date providers.

Assess your expenses


With economic uncertainty, business owners may be looking for ways to reduce costs. That doesn’t mean you need to lower your fee, but it does mean you need to justify it.

  • Gauge your costs against comparable plans (login required) so you know where you stand. Contact your American Funds retirement plan counselor or call (800) 421-9900 to assist in this process. Then compare investment results. 
  • Focus on net results. If the net results of the funds you offer are historically better than those of other lower cost funds, you can make an argument for your long-term value.
  • Adjust as needed. If you need to adjust your fee or service menu, take this opportunity to make any changes that may improve your competitive advantage.

The proactive bird gets the worm


Thinking back to 2009, financial professionals separated themselves into two groups:

  • Those who proactively sought new opportunities in an offensive strategy
  • Those who took a “wait and see” approach and ended up playing defense

You could see the 80/20 rule – also known as the Pareto principle, wherein 80% of effects come from 20% of causes – in action. Observationally, we saw a significant amount of the new retirement plan business go to a smaller playing field of presumably tenacious, proactive financial professionals.


We believe now is the time to act. While some plan sponsors may not be ready to talk, you may be surprised how many are. 



Jason Carlough is a retirement plan counselor with 19 years of industry experience (as of 12/31/19). He holds a bachelor’s degree in business and economics from Lafayette College.


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