If you're a financial adviser with a narrow focus on retirement plans, you're a rare breed — sort of like the spotted Jaguar shark from the movie “The Life Aquatic.”
This breed of advisers needs to get serious about how clients will judge their value. With the advent of the Labor Department's fiduciary rule in April 2017 the stakes will slowly begin to rise on the “What have you done for me lately?” scale.
And if you don't have any way of providing quantifiable measurements of improvement, I would expect you to receive a call from your client informing you that it has decided to find another adviser.
To help avoid that uncomfortable call, I'm providing you with three ways to help clients judge your value — what I like to call the “Three Horsemen of Success.”
I like to think of these as being similar to the three branches of government, which are separate but still dependent. (Although, in this case, hopefully their approval ratings are much higher.)
1. Increase in participation rate
The first aspect on which a client should judge you is: Have you helped increase the participation rate of the 401(k) plan? A company-sponsored retirement plan is the No. 1 savings vehicle for working Americans. So, it's a pretty safe assumption that if employees aren't saving in the 401(k), they aren't saving at all.
They should judge whether you have recommended strategies such as automatic enrollment to help increase participation in the plan. Document that you have recommended those strategies and provide the benchmarking data to show that those strategies have historically delivered for your other similar clients or the industry as a whole.
2. Increase in deferral rates
It's great if you can get the participation rate to jump from 35% of the population to 90%, but most employees would not be prepared for retirement if they were to continue deferring 2% of their salary.
The numbers vary, but, typically, people need to be saving 8%-12% of their annual salary to have enough to replace close to 70% of their pre-retirement salary at age 65. By including this metric, you are telling the plan sponsor you're committed to being held accountable for increasing the retirement preparedness of the population.
3. Increase in retirement readiness
Getting employees to participate in the retirement plan and increasing their deferral rates is great, but it doesn't give a full picture. That's why I suggest having a plan-sponsor client judge you on how you have helped to increase the retirement readiness of their employees.
There are many ways retirement readiness can be measured. I would suggest you focus on a method that measures the percent of salary employees can replace based on the assets they will have in the retirement plan by a certain age. As I mentioned, there are other factors to include, but this is the basic starting point for this measurement.
Ultimately, an increase in retirement readiness will be affected by higher participation, an increase in deferral rates and the increase in rollovers from previous retirement plans, along with consistent savings.
So, while the previous two metrics are helpful, the retirement-readiness metric helps to bring these two together and gives a great overall score of employees' retirement health.
Those who win in the marketplace are the ones who demonstrate the most value and are able to validate it. Use these metrics in your practice to help bring more value to your clients and dominate your marketplace.
Aaron Pottichen is the retirement services president at CLS Partners, an Austin, Texas-based financial advisory firm focused on employer-sponsored retirement plans.