Advisers must go beyond the three Fs to compete for retirement-plan business

In addition to fees, funds and fiduciary, specialist defined-contribution advisers are raising the stakes with conversations around plan health and design

Oct 2, 2015 @ 1:43 pm

By Greg Iacurci

Specialist defined-contribution advisers are raising the stakes for more generalist DC advisers by being proactive with clients around retirement plan health and design, a dialogue that's played well with employers looking to increase plan efficiency and beef up their balance sheets.

Specialist advisers say it's no longer enough to focus on fees, funds and fiduciary guidance, what are commonly referred to as the “Three Fs.” While important, conversations that are increasingly wooing sponsors involve improving plan health, boosting employees' retirement readiness and ultimately shoring up a corporation's bottom line as employees are better able to retire at an appropriate age.

“I don't think [generalists] are touching on these discussions. I'm sure of it,” said Barbara Delaney, principal at StoneStreet Advisor Group. “They don't know to. They're usually wealth managers who aren't versatile on trends in the workplace.”

Specialist advisers, those generating the majority of their revenue via DC plans, have been building their influence in the retirement plan market due to their outsized knowledge of the DC market compared to traditional financial advisers. They oversee nearly half of the adviser-sold DC market, even though they represent less than 5% of the adviser population, according to a recent analysis by Cerulli Associates Inc.

“They're raising the game on advisers that might be doing this in not quite a specialized or focused way,” said Jordan Burgess, head of adviser-sold defined contribution investment only (DCIO) sales at Fidelity Financial Advisor Solutions.

According to a new plan sponsor survey conducted by Fidelity Investments, 17% of sponsors are actively looking to switch advisers, up from 13% last year and 10% the year before. The increase speaks to an increasingly competitive market for advisers, with sponsors upping the frequency of adviser evaluations and wanting advisers with a greater understanding of the market, Mr. Burgess said.

Nearly half of sponsors looking for an adviser change indicated it was because they'd like a more knowledgeable adviser, according to the survey, which polled 952 plan sponsors across a variety of market sizes and record-keeping firms. Those looking for a more knowledgeable adviser have steadily grown over the past five years, to 46% today from 25% in 2010.

“In many ways, they're saying, I'm looking for a specialist adviser,” Mr. Burgess said.

Jason Chepenik, managing partner at Chepenik Financial, said a successful adviser must bring plan-design ideas to the table and put forth an appropriate measure of success to evaluate if a plan is getting “healthier,” meaning participants' retirement readiness is improving.

“Most advisers focus on the 3 Fs. The F they should be focused on is efficacy. Is [the plan] working?” Mr. Chepenik said.

Indeed, improving retirement readiness and preparing employees for retirement was sponsors' No. 1 goal, with 35% of Fidelity survey respondents indicating as much. Further, 86% of respondents said their participants have had to delay retirement due to a lack of savings.

The Three Fs are the baseline for any good retirement plan adviser, but talking about how good plan health can positively impact a corporation's balance sheet can make an adviser stand out, according to Sean Deviney, who runs the retirement plans department at Provenance Wealth Advisors.

Being able to sift through a 60-page plan document, pick out weaknesses, discuss their negative impact on a plan and make recommendations for improvement are areas where a specialist can add value, Mr. Deviney said.

Specialists, as opposed to dabblers, generally make the point that subpar participation and deferral rates can lead to employees' inability to retire on time, a lack of new talent and ideas, growing absenteeism and skyrocketing health care costs, he said.

“That's where you're seeing the differentiation between an adviser and a 401(k) specialist adviser,” Mr. Deviney said.

That's not to say fiduciary management isn't still a primary adviser function. Indeed, helping to manage fiduciary duties is on par with proactive plan design consultation as the most important characteristic in a knowledgeable adviser, according to the survey.

That derives in large part from excessive-fee suits alleging breach of fiduciary duty, according to Ms. Delaney. Many have focused on alleged high record-keeping fees or fees associated with non-institutional share class funds in retirement plans.

These suits have ensnared several large corporations over the past decade and have seen many pay out large settlements. The largest settlement in such a case was reached in February, with Lockheed Martin Corp. agreeing to pay $62 million.

Attorneys familiar with such class-action suits say the claims are becoming more commonplace and are likely to move down market to plans in the tens of millions of dollars in assets. Most to date have focused on multibillion-dollar plan sponsors.


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