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Surprise! Plan sponsors chose advisers based on comfort, fit — not pricing

Dec 4, 2012 @ 3:23 pm

By Darla Mercado

Plan sponsords, investment advisers
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Fees are important to plan sponsors shopping for financial advisers, but they're not necessarily a deal breaker.

In fact, in a study of sponsors by Franklin Templeton Investments and Chatham Partners, pricing came in fourth when employers were asked to cite the reasons they selected a particular adviser. The top three: participant services, fiduciary services/ compliance, and personal fit and sales process.

Prospects decide whether they'll reject an adviser during the sales process, said Yaqub Ahmed, the senior vice president and head of the investment-only division (U.S.) at Franklin Templeton. Typically, it comes down to whether an adviser has a detailed understanding of the potential client and the plan's needs.

“Some intermediaries fall into the trap of pitching a box and having a standard response and sales process,” he said. “If you come in with a needs-based approach and couple that with a careful interpretation of the request for proposal, you can craft a response that meets the plan's specific objectives.”

Sponsors visited by ill-prepared advisers felt that they didn't comprehend the issues for the plan's demographics, Mr. Ahmed added.

Fiduciary and compliance services ranked as the second-most important factor. “Good advisers will explain those nuances — the limited scope 3(21), versus the full scope 3(38),” he said.

How advisers get their foot in the door depends largely on their referral network, according to the study.

More than 80% of the plan sponsors said that they choose which advisers to consider based on recommendations and referrals from a colleague or retirement plan service provider.

Direct solicitations from advisers are less likely to go anywhere, as only 23% of plan sponsors said this was how they select candidates.

Apparently, it helps for advisers to get some peer notoriety.

“Some practice leaders are the ones who are getting a little bit of PR on what they're doing and being acknowledged for it,” Mr. Ahmed said. “They're named among the top industry advisers and have formal acknowledgements from third parties. That goes a long way.

“There are a lot of advisers with good investment and retirement acumen, but there is sometimes a disconnect between being a good business practitioner and running your practice the right way or marketing yourself appropriately,” he said.

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