How to service small retirement plans and still make a profit

Outsourcing ongoing investment monitoring and education meetings, taking work on a project basis and charging a flat fee are ways advisers can help small plans while making revenue

Mar 15, 2017 @ 5:00 pm

By Aaron Pottichen

Small 401(k) plans — those with less than roughly $10 million in assets — need the most help from a fiduciary plan adviser, and yet this is the market that's most underserved.

That's partly because fiduciary advisers traditionally working further upmarket may view small plans as a way to quickly increase workload for little monetary payoff.

But it's up to us to help walk these small business owners through the sometimes complex process of setting up and monitoring retirement benefits, and there is a way to do that without drowning our practices in small retirement plans.

One way to help ensure advisers earn the income they need to justify servicing this market is to do less. Yes, do less.

When my practice works with small plans, we typically won't provide ongoing investment monitoring or education meetings. Both of these items can eat up large chunks of time and, unless they are itemized separately, will reduce your ability to earn a minimum amount of revenue.

Instead, when working with small plans we focus on the following: selecting a vendor(s), doing the initial investment-menu selection, creating an education plan and assisting with the implementation of the retirement plan. After the plan is fully implemented, we hand off all ongoing service items to the record keeper and outsourced investment managers.

Below are some tactical ways to start working with small plans.


It helps to work with a record keeper that will provide initial and ongoing education meetings. Some record keepers have a minimum employee requirement, but will often accommodate a smaller plan if the numbers are close.

Adding on a 3(38) investment manager — a particular fiduciary under ERISA that takes discretion for changes to a plan's investment menu — for these small plans is also a great option, particularly if an adviser isn't going to be involved with the client post-implementation.

Many record keepers have decided to make such third-party services available at a very nominal or no additional expense (dependent on plan size).

In the small-plan market, adding an outside 3(38) investment manager helps the plan sponsor and an adviser deal with the sometimes time-consuming and liability-driven action of selecting and monitoring investment funds.

When our firm works with small plans, we'll help the employer select a menu of investment options that already meets a 3(38) investment manager's criteria.


When we engage with companies to help them set up a retirement plan we are, more often than not, doing this work on a project basis, meaning our services end once a plan is fully implemented and the plan sponsor understands its role.

By removing the ongoing-work portion and instead focusing our expertise on a retirement plan's selection and implementation phase, we're able to deliver a product that is appropriate for the client and leave them and their employees with reasonable ongoing fees.

Further, treating it like a project (and having paperwork that stipulates when our services end) helps to clarify with the client what we will and won't do and when we'll do it. The clients that work with us this way understand there's a separate fee for additional services following implementation.


Many financial advisers have operated using a broker model, whereby their compensation for servicing small retirement plans has come from commissions built into mutual funds. But this compensation model makes it unappealing for a financial adviser to service the small-plan market; if there are no assets, there isn't going to be any compensation.

This is where the advantage goes to those operating as RIAs, which can customize fees and determine how to get paid. When it comes to the small-plan space, we have opted to charge a one-time flat rate for project work and a minimum flat fee for ongoing work.

Clients understand that our services mimic those of an attorney — once the work is finished or the retainer is gone, so is our service. And the fee is often paid for directly by the employer, meaning the employees enjoy lower fees. The rate depends on the work we're doing and the complexity of it.

Working with big retirement plans is rewarding, and it's certainly nice to bring about positive change for large groups of people. But it's also great to know that the same level of advice and guidance can be distilled down to the small-plan market, where it is sorely needed.

Aaron Pottichen is the retirement services president at CLS Partners, an Austin, Texas-based financial advisory firm.


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