How retirement plan advisers can create the ideal practice

Building a successful defined-contribution business is much different than growing one focused on individuals.

Experienced and successful plan advisers working with defined-contribution plans like 401(k)s or 403(b)s are focused on improving outcomes for the employees of plan sponsors.

The easy way is through the “ideal plan,” which incorporates features like auto-enrollment, auto-escalation, the stretch match and target-date funds. But few advisers focus on building the “ideal practice,” which is critical to their success and their ability to help clients.

What does the ideal practice look like?

Plan advisers are at different levels in their DC practice. Many approach the DC business differently: Some are part of a larger group or wirehouse, while others go it alone. Even if advisers can’t incorporate all aspects of an “ideal practice” into their real-life practice, they can use the parts that apply to them now.

There are three areas of focus in an ideal practice:

Outward (client-focused)

• Engaging senior management — plan and participant health
• Understanding financial statements — clients and practice
• Managing benefits budgets — companies and employees

Practice and investment-focused

• Investments — next-generation “pension-like” investments
• Plan design — behavioral finance/ideal DC plan
• Participant engagement — financial wellness

Inward (practice management-focused)

• Client acquisition — consulting, not selling
• Managing partners — asset managers, record keepers and broker-dealers
• Managing human, technology and financial capital

Being client-focused is key, which is why it appears first. If plan advisers can’t engage an employer’s senior management in their DC plan, chances for success are limited — for the plan, the employees and the adviser.

Understanding how employees not able to retire on time affect a company’s bottom line is essential, as is advisers’ understanding of their own financials. Health care and other benefits are following the evolution of retirement plans — participant-funded and directed. All benefits need to be managed holistically.

Plan advisers need to take an innovative approach to investments, plan design and participant engagement. “Triple F” advisers — focused on fees, funds and fiduciary responsibility — are doomed to fail or, worse, continually be forced to cut their fees.

Finally, advisers need to run their businesses effectively, starting with innovative ways (beyond cold-calling and third-party telemarketers) to find new clients; finding the right partners, who understand their business and are forward-thinking; and effectively managing people, technology and capital.

The ideal practice may seem daunting, with many advisers joining a group that truly understands the DC business and provides some of the necessary support, training and tools. DC practices are different than practices focused on individuals. There are more moving parts. Only advisers who understand how to run the business, or join a group that understands the business, are in a position to be successful in the DC industry.

Fred Barstein is the 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.