During his lecture at a recent event for The Retirement Advisor University, UCLA professor Noah Goldstein, a noted author and expert on persuasion, related a story about a friend who consulted for a hot tub company. The company wanted to boost sales of its higher-end model. By simply presenting the more expensive hot tub to consumers first, sales of that model increased by 50%.
The hot tub manufacturer wasn't satisfied, so a company consultant asked clients what they thought about the hot tub they had purchased. One said it was like adding a new room to the house. A light went on for the consultant. When salespeople compared the hot tub to a home annex, sales of the higher-priced tub went up more than 500%.
Think about restaurant wine lists, Mr. Goldstein suggested. If the cheaper wines are listed first, the better wines seem expensive. Switch the order and the perception changes.
So how can retirement plan advisers apply this wisdom?
First, they should offer at least two tiers of services. One tier, for example, might include quarterly meetings with a plan sponsor's retirement committee (maybe not all in person) to review the plan investments, vendors and fees. Another level might include acting as a co-fiduciary and conducting quarterly employee education meetings, maybe one-on-one advice.
(More: Wealth managers ignore 401(k) plans at their peril)
Starting with the more expensive service will make the lower-tiered service seem very reasonable without making the higher-level service expensive.
Going even further, an adviser might ask the client how much it would cost to hire a full-time professional in-house to oversee all retirement benefits. If advisers position themselves as "outsourced chief retirement officers" — acting as the leader of the retirement committee, educating and advising employees, suggesting alternatives like nonqualified plans for higher-compensated workers or student-loan debt management for younger ones — they can legitimately compare themselves to a full-time, in-house professional.
Moreover, it's unlikely that a full-time employee would have the depth of experience that a knowledgeable plan adviser brings, or the resources or advantage of learning from other companies. Using temporary or even gig workers is attractive to companies wary of bringing on full-time employees who cost more because of benefits.
(More: Benefits of cross-selling are too big for 401(k) advisers to ignore)
When advisers compare themselves to a full-time retirement benefits professional, the higher-level tiered service seems reasonable. And for plan sponsors that are focused on low fees and may not value the higher-level service, it's a chance for a plan adviser to form a relationship and possibly upsell the client while still maintaining a reasonable profit margin.
As fees
continue to decline overall in the defined-contribution industry, amid more scrutiny, transparency and litigation, advisers need to improve business management processes while providing higher levels of service to plan sponsors and participants — especially because less experienced plan advisers are offering what they claim are the same services at a much lower price.
Advisers also need to be creative about how they position themselves to prospects and clients. The cost of taking Mr. Goldstein's advice is negligible, but the return could be massive.
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.
