Retirement Plan Business
7 MIN ARTICLE
Adding retirement plan business to your practice can help you retain assets, stabilize investment flows and increase ancillary sales. Follow these simple strategies to find good leads and establish relationships with new clients.
Greg Mendoza has always seen the opportunity in retirement plan consulting, even when he started in the business 20 years ago. “I was one of 107 people in my training class,” Mendoza says. “What differentiated me is everyone else went to the phone book; I went to business owners.”
His reason was simple: “I used to hate getting phone calls from telemarketers myself, so I didn’t want to call people at home,” he says. “I could talk to business owners at work.” Most of the people he spoke with either didn’t have a 401(k) plan or anything else in place. “But even if they did, I could extend myself as someone who could help them evaluate their plan, identify opportunities for improvement and implement these solutions.”
Today, Mendoza’s business, Integrated Wealth Management, in Hartford, CT, manages more than $1.5 billion in 401(k) assets alone. He encourages other advisors to consider the retirement plan business. “No one thinks they can do it, but I assure you it’s possible — even in this day and age,” Mendoza says.
Getting serious about retirement plan consulting provides a way to scale your practice’s growth while leveraging what you know best — helping and educating investors in need. Successful retirement plan advisors say it helped them grow and retain assets under management, stabilize flows and increase ancillary sales — even during difficult times. If you’ve ever thought about getting started in the retirement plan business, consider these four reasons to add 401(k)s to your practice. Plus, see how to get started with a “one-meeting close.”
1. Retirement plans can offer more than AUM
While advising on retirement plans can be a way to increase your investment assets under management (AUM), there’s a quality that can set these assets apart. Retirement plans also offer:
- Strength in numbers. Instead of individuals who may invest sporadically, retirement plans are aggregated groups of income-earning employees with incentives to invest regularly. This can lead to more stable asset flows and allow you to weather a variety of markets.
- “Sticky” assets. Even during market declines, participants tend to keep their money in their accounts, and many continue investing through their payroll deductions.
- Potential gateways to more business. As an important source for investor education, you may have additional opportunities to help retirement plan participants with college savings, individual retirement accounts (IRAs), rollovers and retirement income.
2. You don’t have to be a specialist (but you should think like one)
In his early days cold-calling businesses, Mendoza was no retirement plan specialist. But he learned quickly that he could add value by knowing the ins and outs of Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) IRAs and other options for small business owners with fewer than 100 employees. “Knowledge is power,” Mendoza says. With so many regulatory changes recently impacting retirement plans, extensive knowledge on the subject is more important than ever. Even if you don’t choose to specialize, advisors considering working with retirement plans should be aware not only of retirement investing concepts, but also of plan administration and the roles of different fiduciaries.
Fortunately, there are resources to help you learn, if you know where to look. As his business grew, Mendoza leaned on third-party administrators (TPAs), accountants, and other professionals to help him navigate the complexities of these plans and even help him find business. “Professionally, you want to align yourself with TPAs and accountants, human resources professionals, benefits consultants – and they want to surround themselves with advisors.” These professionals are particularly interested in those advisors who can offer something in kind, such as 401(k) investment advice, employee advocacy and participant education, plan design and plan provisions. “There are a lot of different levers you can pull to get their attention,” he says.
For those advisors who want to specialize in retirement plans, a professional designation can help. Mendoza believes his Chartered Retirement Plan Specialist (CRPS) designation from the College for Financial Planning sets him apart in terms of capability and perception.
3. Retirement plan prospects can be found everywhere
Clients, business owners, friends, family, acquaintances, even people you bump into in an elevator or on social media — once they know you offer retirement plan services, you may be surprised by how many connections are uncovered. They may work for a business that is looking for help with a plan or, better yet, own or manage a business themselves and are looking to provide a retirement plan to employees.
Mendoza regularly looks to his existing book of private wealth clients for potential opportunities. When advising businessowner clients or even looking at an executive client’s 401(k) statement, he says, “I can go to freeerisa.com, look at the filing and see how big the business is. I’ll know right off the bat whether I can save them money.”
Find out how to start the retirement plan conversation with different types of prospects.
4. Just two plans a year can grow your practice
Mendoza likens building a retirement plan practice to the theory in chemistry of activation energy: “It takes a certain amount of energy before things kick in,” he says. But plan growth can compound over time. Consider how quickly a hypothetical practice might grow by winning just two new retirement plans per year. By year 10, you could be managing 20 or more plans with hundreds of participants and millions in additional assets.
Winning just 2 plans a year can add up over time
Hypothetical example for illustrative purposes only; not intended to portray an actual investment. Example assumes (1) the addition of one startup and one takeover plan with $2.5 million in assets each year, (2) that each plan has 30 participants and adds $150,000 a year in new plan contributions; and (3) a hypothetical 8% annual growth rate on assets
Take action: Learn the art of the one-meeting close
With insight and the right support and tools, prospecting for new retirement plan business need not be complicated or time-consuming. Many plan sponsors often are looking for two things above all else:
- A low-cost target date series with a history of superior investment results
- A low-cost, high-quality recordkeeping solution
How could you incorporate this kind of insight into your sales approach? Here are three steps that may help seal the deal in a single meeting.
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Step 1
Find promising prospects
BrightScope.com, an independent, Web-based service, offers access — at no cost — to its Form 5500 database. Think of it as the Facebook of 401(k) plans. For instance, consider looking up local medical, veterinary, accounting and law practices, and businesses owned by your current individual investor clients. (Other Form 5500 databases you might use include freeerisa.com, Larkspurdata.com, JudyDiamond.com and efast.dol.gov.)
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Step 2
Call the prospect
Call the local key contacts of the plans that you’ve identified through a Form 5500 database. Send each a sample cost comparison report (for example, you can have one sent to you by Capital Group, home of American Funds), and then follow up by phone.
Ways you might frame the conversation include:
“My firm has access to a tool that enables me to benchmark retirement plan fees. I’ll be happy to email you a report customized to your plan.”
“I don’t need to meet with you to run the report, and I don’t need any personal data. I only need some plan-level data that’s easy to find.”
“Within 48 hours, I can send you a report like the one I just emailed you, but this one will be customized for your plan.”
“Based on this customized report, I may be able to help you negotiate fees with your current provider.”
“Who in your company could provide me with the data I’ll need?” The plan-level data referred to above can generally be found in the plan’s fee disclosure under “reports” or “documents.”
If the sponsor can’t find a report with the necessary information, tell the prospect that you need the following data in order to run a benchmarking report for their plan:
- List of current plan investments, including expense ratios or ticker symbols and, if available, the amount invested in each fund
- Any additional investment charges, such as wrap/advisory fees or contract/daily asset charges not included in the fund expense ratios
- Actual out-of-pocket costs paid directly by the plan sponsor or deducted from participant accounts over the past year for recordkeeping and administrative services
- Copy of the group variable annuity contract, assuming the plan is on an annuity platform
- Any expenses (or credits), such as surrender or contingent deferred sales charges or market value adjustments, which might result from terminating the contract with the current service provider
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Step 3
Meet with the prospect
By this point, you may have had multiple positive interactions on the phone and by email with the prospective client. You know a great deal about the plan and, more importantly, have served as an advocate for the plan by encouraging the current provider to reduce fees.
It’s time to schedule a meeting with the prospect to discuss your proposal for improving the plan. It may surprise you to learn that many sponsors will ask for a meeting before you get a chance to bring it up, especially if the retirement plan you’re proposing is less expensive than their current plan.
Before setting a date, however, call your Capital Group retirement plan counselor (RPC). This experienced professional is ready to help you acquire your next plan.
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