Breaking into the business of retirement plan advising

It’s not tough to understand a financial adviser’s attraction to retiring baby boomers — especially when it comes to helping them make wise decisions about the hard-earned dollars they’ve socked away in their retirement plans. One path toward managing those assets is to become an adviser to employer retirement plans, a role that can provide an “in” to the top earners of the firm, as well as other savers looking to roll over funds down the road.

But advisers need to look carefully before leaping into the retirement plan advising space. Anyone considering a shift into the market has to consider the additional expertise needed, and will have to think differently about their fee structure and whether they’ll need more employees to serve these clients.

“The retirement advising specialist is becoming more the norm rather than the adviser who has just a few retirement plans in addition to their regular clients,” said Justin Morgan, director of internal sales at Unified Trust Co.

The industry is gravitating toward advisers who are solely — or at least primarily — focused on qualified-plan business and away from nonspecialist brokers who might advise a few retirement plans for business executives they know, he said.

Successful retirement plan advisers increasingly have a team in place to work with the 25 to 75 plans they advise, including someone who does on-site meetings for participants or other educational workshops and a salesperson who handles the sponsor company’s committee-level relationships, he said.

ADDITIONAL KNOWLEDGE

One of the greatest hurdles advisers face getting into plan advising is gaining the additional knowledge needed, specifically details about the Employee Retirement Income Security Act of 1974, which is administered by the Labor Department.

“Advisers tend to underestimate the amount of know-how it takes to be a high-quality 401(k) adviser,” said David Blanchett, head of retirement research at Morningstar Investment Management.

“Plans want someone who is a true 401(k) expert, not just a financial adviser who understands what it means to choose a mutual fund or other investments,” he said. They want “a breadth of knowledge about 401(k)s, including specifics like non-discrimination testing, as well as the skills to meet with participants and an understanding of basic plan design.”

To boost their knowledge, advisers can seek designations such as the qualified plan financial consultant, offered through the American Society of Pension Professionals and Actuaries, or the certified employee benefit specialist mark. Advisers also should take advantage of webcasts and other educational offerings from retirement plan providers and third-party administrators, experts said.

Pete Swisher, national sales director of Pentegra Retirement Services, a retirement plan provider, suggests that advisers interested in the space attend several major conferences, including the Center for Due Diligence’s Advisor Conference and ASPPA’s 401(k) Summit.

Mr. Swisher, author of “401(k) Fiduciary Governance: An Advisor’s Guide” (ASPPA, 2007), said it used to be easier for financial advisers to find retirement plans interested in new professionals because service was generally poor — there was no oversight of the investment choices, and expenses were high.

“It was the Wild, Wild West and it wasn’t hard to find low-hanging fruit,” he said. “Today’s opportunity in the retirement space is for those who can find unmet needs and offer a message or method that is different.”

PAYOFF VS. TIME

Advisers interested in the retirement plan advising business will find the fees they can charge are smaller, based on a percentage of assets, than they charge for individual planning. Changes to ERISA enacted last year requiring that plan providers disclose to plan sponsors and participants all fees associated with their 401(k) plans are putting additional pressure on advisers.

In addition, the time required to assist retirement plans is much greater than for individuals or families.

“The biggest transition in moving from advising families and individuals to retirement plans is that you’re now dealing with an institution,” said John C. Granzow, managing director of investments at Wells Fargo Advisors. “Now committees and boards are making decisions about vendor selection and asking you about the type of governance and regulation documents they need to have.”

Mr. Granzow, who has advised retirement plans for 10 years, also has institutional and individual clients. The plan advising business is the most time-consuming because there are meetings with investment committees every 90 days, communications plans to be created, investment benchmarking, policy statement writing and annual audit meeting preparation.

“It’s a lot more involved from a time perspective,” he said. “There are just a lot more “I’s to dot and “T’s to cross.”

PLAN DESIGNS

In addition to ERISA regulations, an adviser needs to learn about different plan designs offered by third-party administrators and accountants, and become familiar with which vendors make the most sense for retirement plans of different sizes, Mr. Granzow said.

“The best place for an adviser to start is to talk with existing clients who own a business and probably have a retirement plan,” he said. “Start there to learn the approach needed.”

Although breaking into this market and the work it entails can seem daunting, advising plans can be an effective method for attracting new retirement assets from rollovers, Mr. Morgan said.

“As the aging population is starting to progress toward retirement age, that is a big draw for those who are focused on the wealth management side,” he said.