How the COVID-19 crisis is affecting 401(k) sales

Amid the pandemic, many plan advisers are focusing more on customer service, and the shift to working with clients remotely is likely to accelerate

There is no doubt that 401(k) and 403(b) plan sales have stalled as a result of the COVID-19 crisis. Retirement plan advisers and record keepers are putting on a brave face but, other than anecdotal sales, nothing is getting closed. Plan sponsors have more important things to focus on than changing their defined-contribution adviser or record keeper.

“Revenue will be off projections without a major [market] comeback,” said Craig Reed, director of retirement services at Marsh & McLennan Agency.

There is little to no cold calling. Prospecting during this pandemic, while businesses are laying off employees and trying to stay afloat, would not be well-received.

“Now is not the time to be reaching out,” said Rick Shoff, managing director at Captrust.

It’s anyone’s guess on when business will return to normal. Assuming it does, when will companies turn their focus to DC plans and look to change providers or advisers? Industry professionals admit that there will be a new normal when that time comes.

Many retirement plan advisers are using this crisis to focus more on customer service – and that is a good idea.

Right now, “‘sales’ is keeping current clients,” said Jay Laschinger, senior vice president of retirement at Alliant Retirement Consulting.

There will be an opportunity to share with prospects what advisers did for clients during the crisis, highlighting their capabilities, said Jeff Cullen, managing partner at Strategic Retirement Partners.

“Set up a file documenting what you are doing to help clients, [and use that] as a prospecting tool in the future,” Captrust’s Shoff said.

“Beyond the triple Fs” of fees, funds and fiduciary, said David Hinderstein, president of Strategic Retirement Group, “advisers need to focus on plan design and employee communication. Advisers had gotten big, fat and happy – now is the time to reset strategy and process.”

The crisis will only accelerate the confluence of wealth and retirement, as plan sponsors see the need not just to communicate with all employees but also help them prepare for a crisis. That can include setting up emergency savings accounts – something that benefits both the company and the employee.

Working with clients remotely will also accelerate. And for participants, that will be a welcome change.

“Many participants prefer remote meetings, which can occur during off-hours and include their spouse,” said Randy Long, managing principal at SageView.

Two years ago, Captrust introduced its participant advice services. Until now, some plans were reluctant to sign up for it. Now, customers “are reaching out to learn more,” Shoff said.

Plan sponsors that had been wary of conducting committee meetings remotely are becoming more comfortable, and technology is making it easier. Just as iPads changed participant meetings, Zoom will change committee meetings and participant engagement.

Most advisers and plan providers are set up to work remotely, but those that had developed the technology and practiced using it are faring better.

Setting boundaries with family and creating the right work environment, with large computer screens and proper soundproofing, are key, Cullen said.

SageView is rethinking its strategy of maintaining offices in all the cities where it has an adviser. “I would not want to be in the commercial real estate business,” Long said.

Market crises favor RPAs over wealth managers for a variety of reasons. Retirement plan investing, by its very nature, has a more long-term focus, and contributions are automatically deducted from employees’ pay. RPAs owned by larger groups have more resources to weather the storm and take advantage of opportunities when business resumes. Not only do larger firms have the resources to help employees, most have cross-selling opportunities.

“RFP activity for advisers had been higher than ever this year, before the crisis,” Shoff said. As the importance that plan sponsors place on advisers grows, RFPs will become more common. That will further separate the dabblers from the specialists, especially those affiliated with larger groups. And as the role of the adviser compared to the record keeper or TPA becomes clearer to plan sponsors, so too will the differences in levels of service. They will become aware that RPAs are not created equal and do not deserve the same compensation.

The move to plan-level flat-fee payments will also quicken, coupled with the use of fees for service, like participant advice. That can help avoid huge revenue losses during market downturns.

“Institutional investment consultants who charge by the hour may also be vulnerable,” Laschinger noted.

Will DC plan sales, either through adviser turnover or record-keeper change, come back with a vengeance when the crisis is over?

Perhaps, but maybe not right away. Just as with the 2008-2009 crisis, dabblers who did not communicate effectively and frequently will be exposed. That will lead to opportunities for specialists or it could force dabblers to become more focused.

The market share of dabblers might continue to erode, but their demise is always exaggerated.

In the emerging and smaller markets, where most specialists do not engage, dabblers will have more resources, particularly with pooled employer plans, which will help their value proposition.

Rather than focus on their own businesses, plan providers and RPAs should also envision how their clients will change and then adjust accordingly. The nature of work is changing, whether it involves remote, part-time or gig workers.

Providers and advisers should think about how they can help all employees, not just the high-net-worth or mass affluent. Adjusting businesses strategies takes time, foresight and resources, all of which are in short supply for most advisers, even specialist RPAs.

[More: A crisis is a terrible thing to waste]

Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’ Retirement Plan Adviser newsletter.