How RPAs can decommoditize their 401(k) services

Though retirement planning seems so critical to those of us in the defined-contribution industry, just as copy machines seem to their salespeople, plan sponsors may not feel the same.

David Stofer, president at Mariner Retirement Advisors, commented on a recent webinar that he gets annoyed with salespeople offering products not essential to his business — like copy machines — constantly pestering him. Then he had a revelation that maybe 401(k) plan sponsors feel the same way about him.

Though retirement planning seems so critical to those of us in the defined-contribution industry, as copy machines seem to their salespeople, plan sponsors may not feel the same.

Having spent a lot of time attending human resources industry conferences and training plan sponsors, I realize that most plan sponsors, especially human resources professionals, view benefits the way that advisers view compliance – as a necessary distraction. They get promotions and raises when they improve recruiting, retention and productivity. Human capital is the most valuable resource for most businesses.

Most retirement plan advisers still lead with and focus on their “Triple F” services — fees, funds and fiduciary. While those services are still important, they have been commoditized through benchmarking databases and reporting software. And focusing on fees is a double-edged sword — plan sponsors can save more money on health care costs, and less experienced RPAs, armed with fancy reports and databases, can seem to replicate all services for a much-reduced fee.

401(k) plan sponsors want and appreciate the value of “nothing” — low fees, limited liability and less work. But RPAs have to go further if they want to become essential to the three clients they serve at a plan sponsor: the company, the person in charge of the 401(k) plan and the employees.

Many RPAs have shifted their focus to outcomes like participation, deferral rates and income replacement ratios. In fact, there was a short-lived industry conference just on that subject of outcomes. But outcomes are a truism. And it is limiting, as the focus is on retirement plan balances and how that equates to income replacement.

There has been a shift to financial wellness, piggybacking on the overall wellness movement offered to help companies reduce health care costs. But before financial wellness has even had a chance to develop, there is major disappointment on engagement and results. Does it have teeth? Is it merely a prospecting tool and a way to make us feel better about helping the underserved employees, without real results or changes in behavior?

Along with helping with the Triple Fs and becoming a plan sponsor’s chief retirement officer, RPAs must partner with their clients to help their employees to achieve financial freedom. Retirement is a foreign word to younger workers who might have 30 or more years ahead. And a growing number of older employees are continuing to work at some level as technology and medicine have made that possible and attractive.

We are starting to see some real movement in enabling workers to achieve financial freedom through health savings accounts, emergency savings and student loan repayment, but we have a long way to go. That’s good news, because there’s so much more we can do to help with saving and spending. Being able to reach the 90 million workers who have an account balance is a tremendous opportunity to help plan sponsors with retention, recruiting and productivity.

Leading with fees, funds and fiduciary speaks to fear, greed and paranoia. That will not help. Leading with financial freedom, while overcoming concerns, will elevate you above the copier salesperson. Otherwise, get used to waiting in the lobby with the rest of commoditized service providers and be ready to sell on price, not value.

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