In the competitive environment surrounding retirement plans nowadays, having any extra advantage is something advisers want and need. The way many
retirement plan advisers stand out is by using tools to provide feedback to plan sponsors on a variety of topics. For example, many advisers utilize a report that compares
target-date funds to provide evidence on why one glide path, and hence one target-date suite, would be better than another.
What plan sponsors may not know is that some of the tools their advisers are using were provided free of charge by a service provider, like a record keeper or investment manager, that the adviser is now recommending.
This raises an obvious question: If advisers are given a free tool that makes them more competitive, are they still able to provide unbiased advice to their clients? The answer isn't necessarily "no," but here are some recommendations on how to approach using these free tools and what to tell your clients and prospects when you use them.
BE TRANSPARENT
The first step you should take with clients or prospects is to be transparent. Many of these tools are built to promote the adviser's firm and even hide the name of the service provider offering the tool.
If an adviser is using a tool provided by an asset manager and then recommends that asset manager without notifying clients, the client will eventually figure it out.
Plan sponsors will likely support the decision if advisers are honest and let them know the tool isn't something the adviser has access to through his or her advisory firm or isn't available to advisers for purchase by itself (or maybe the compliance department will not allow its purchase).
It would also be prudent to have some other supporting evidence for the selection of that service provider. Who doesn't look good playing poker when they shuffle the deck?
Saying the tool isn't available for purchase is generally not true for the following tools, however: target-date comparison, investment analysis research and vendor comparison. However, there is some validation to the claim when it comes to tools that are analyzing participant behavior, retirement outcomes and employer match costs.
(More: Passive target-date funds? No such thing)
ONLY USE TOOLS FROM VENDORS YOU'RE LIKELY TO DO BUSINESS WITH
Only using tools from such vendors helps to ensure advisers won't make a recommendation they wouldn't otherwise make. Think of it as morality insurance for the advice you give. This helps to reduce the pressure advisers may feel to push business to a provider advisers wouldn't otherwise have worked with.
Our friends in asset management and record keeping have businesses to run and using the tools they provide for free costs them money, in time or in actual dollars. Be respectful and only use tools from vendors you'll do business with.
PURCHASE THE TOOLS (OR MAKE THEM YOURSELF)
Lastly, always purchase the tools you use to make recommendations to clients, if possible. This has been our firm's policy and when we couldn't purchase the tools, we did rely on what was available from our vendors (with full disclosure to our clients). In other circumstances, we have created our own tools to further separate any bias toward a vendor.
The long-term benefit of being independent with the advice you provide is huge and will pay off.
Remember, at the end of the day the truth always comes out. Acting in the best interests of the client and not your wholesaler relationships results in business won and business staying on the books.
(More: What can Tabasco sauce teach advisers about 401(k) loans?)
Aaron Pottichen is the retirement services president at CLS Partners, an Austin, Texas-based financial advisory firm.
