Industry the June 2017 issue

Thinking of Retirement?

The retirement business is complicated, difficult and very lucrative. Opportunities abound, but is it right for your firm?
By Daryl Lease Posted on May 31, 2017

Americans are now generally better positioned for retirement than they were a few decades ago, thanks to the ability to slowly and effortlessly save money through their workplace 401(k) accounts and similar defined contribution plans. But not everyone has benefited. Many workers—more than 30 million nationwide—do not have access to the tax-deferred accounts. And it’s increasingly clear, as surges of baby boomers enter retirement, many others who do have 401(k)s fail to save as much as they need to in order to retire in comfort and security.

By some estimates, America’s retirement savings shortfall is as high as $14 trillion, a problem that is now boomeranging back to employers, who find themselves uncertain about what to do with a graying workforce that can’t afford to retire. Delayed retirements affect the bottom line through increased health costs and strains on productivity and innovation.

Those challenges—as well as other recent trends in the retirement planning space—are tailor-made for benefits brokers who are already working with employers on health plans, life insurance, workers comp and other programs.

There couldn’t be a better time for firms with broad experience to enter the space, according to Joseph DeSilva Jr., senior vice president and general manager of ADP Retirement Services. “There’s a change right now that’s going on in the marketplace where people expect more value at a lower cost,” he says. “A lot of that’s driven by regulation, but a lot of it has been in motion for years now.”

Among those drivers is a controversial rule from the U.S. Department of Labor that has occupied the industry’s thoughts since 2010. The fiduciary rule, championed by the Obama administration, requires brokers and advisors to more clearly demonstrate they’re putting their clients’ interests first. Critics contend the change, which has faced challenges from the Trump administration, will limit investment choices, impose burdensome compliance requirements and ultimately drive up costs.

The Trump administration recently announced the rule will begin taking effect in June but will not be fully enforced until at least January while its review of the potential effects continues. Further revisions are expected. Regardless of the outcome, it’s already changed the industry. Some advisors unwilling to take on the additional rigor as a fiduciary have departed the space, and others are expected to leave rather than compete with firms that have proceeded with the basic tenets of the rule even if the Trump administration significantly changes it.

“I am seeing more of a trend of retirement-focused advisors emerge,” says Allison Winge, executive vice president of retirement at Plexus Financial Services. But Winge, who has been in the industry for 17 years, cautions that the upcoming changes won’t work for everyone. “Assuming the fiduciary rule does pass,” she says, “I would only recommend it if the advisor is wanting to specialize in the retirement plan space.”

Dave Kulchar, director of retirement plan services for Oswald Financial, offers a similar note of caution. “Plan sponsors are not looking for generalists,” he says, “so to be competitive in this space, you must be a specialist.”

Nevin Adams, chief of communications and marketing for the American Retirement Association, says a new regulatory regime—or remnants of it—could be an advantage for new arrivals.

“If you’re new to it, you don’t get so caught up in the way it used to be and the way we used to do things,” he says. “The things that might be considered strange, alien or complicated to the people who have been doing this business for a while—to you, it’s just the way it’s been.”

Eric Poole, a financial planner with Kentucky Planning Partners in Louisville who began handling 401(k) accounts three years ago, says he expects more accounts will come into play as firms depart. “This may be a time where they’re looking to cash out, sell a book, or get out of the business as a whole,” Poole says. “It’s nothing but a huge, huge opportunity for anyone looking to get in.”

Plan sponsors are not looking for generalists, so to be competitive in this space, you must be a specialist.
Dave Kulchar, director of retirement plan services, Oswald Financial

DeSilva, whose firm works with 53,000 plan sponsors nationwide, agrees. “Regardless of what the DOL or the Trump administration requires, there has been a huge change in the marketplace,” he says. “The buying expectations have changed. The expectations are focused on a provider that has a lot of knowledge, a lot of value, for a really low cost.”

Amber Lloyd, manager member and owner of Retirement Management Services, a third-party administrator in Louisville, expects most changes to occur with smaller plans as those advisors decide they can’t take on a larger fiduciary role. “I think that’s definitely a market for advisors that want to get into the space,” she says.

The surge of retiring baby boomers is also affecting the business as advisors and brokers join their clients in retirement. The average age of a financial advisor is 50, and more than a third plan to retire within 14 years, according to a recent survey by Cerulli Associates and the Investment Management Consultants Association. As those advisors retire, the American Retirement Association’s Adams says, the landscape will change. New entries into the space could buy or merge with firms, hire their advisors or take over their books.

Adams says the space is ripe for competition, particularly from people who are focused and dedicated. He says numerous advisors can be easily displaced because they tend to bring in a plan, put it into the hands of individual account managers and move on.

“They’re not doing right by the plan sponsors. That’s a sad thing,” Adams says. “That’s why I think there’s a lot of opportunity for advisors who are really committed to this business.”

Partner Up and Start Simple

Veterans of the space and recent arrivals both stress one bit of advice for brokers considering expansion into retirement planning: don’t go it alone. Carve out an initial role for yourself, and find others to complement you.

“If you present yourself as ‘I, I, I,’ you’re not going to make it in the industry, because it’s very complicated,” says Ruth Rivera, vice president of retirement services at Bukaty Companies.

“It’s almost impossible for someone to say, ‘Hey, I’m going to be a retirement advisor now and focus on supporting retirement plans,” says Phil Chisholm, vice president for product management at Fidelity Investments. “The complexity from a regulatory, legal and just structural standpoint requires some experience. Where we tend to see the most success is people who partner with others who bring a skill set as well.”

One valuable entry point is education and enrollment meetings. “It’s a great introduction to the business,” Poole says. For example, explains Chisholm, “an advisor might say, ‘I don’t understand the technical ins and outs of a 401(k) plan, but sitting down in a cafeteria and talking to participants, that’s where I’m really strong,’ or ‘Sitting with a plan sponsor or employer and talking about investments, I’m really strong there, too.’” As for the rest? “We’ll help fill in the gaps,” Chisholm says.

There are three avenues of training that new and established players in the industry mention most frequently:

  • The National Association of Plan Advisors (NAPA), an affiliate of the National Retirement Association, offers an introductory online practice-builder course, full training and certification for fiduciaries, and numerous continuing education programs.
  •  The Retirement Advisor University, a program through the UCLA Anderson School of Management Executive Education, has courses taught by professors and retirement industry leaders available on campus and online.
  •  The College for Financial Planning offers numerous professional designation programs, including Certified Financial Planner.

“Those three resources probably cover the bulk of the needs of an advisor trying to get up to speed,” Chisholm says. Other options include the International Foundation for Retirement Education, the Center for Fiduciary Studies and the Society of Certified Financial Advisors.

At the outset, advisors will need a Series 7 securities license. Winge, of Plexus Financial Services, says advisors should also consider a Series 65 license to offer co-investment fiduciary services.

Some advisors later choose to pursue a full fiduciary role, taking responsibility for fund selection and monitoring, Lloyd of Retirement Management Services says, while others stay closer to the education role.

“They’re the advisors out talking to employees, helping to explain what the retirement plan is, what the benefits of participating in the plan are, how to accumulate funds over your lifetime, and what that’s going to mean to you,” she says.

“The key is you don’t have to do everything yourself,” says Tobi Alfier, a consulting practice director for CBIZ ACI. “Find people who will help make you shine.”

Key alliances include recordkeepers, who set up the defined contribution plan’s platform and track its assets, and third-party administrators, or TPAs, who oversee plan design and help employers comply with government regulations.

Alfier says developing a solid team will help protect clients—and you. “If you are going to specialize in large plans (more than 100 employees), meet CPA auditors you can refer,” she says. “For any size plans, find a TPA who can do plan design, prepare illustrations, sit shoulder to shoulder with you in prospect meetings, and who has a great staff committed to accurate and timely administration.”

Rivera, a 20-year veteran of the industry who shifted to advising on 401(k)s three years ago, also recommends bringing experienced people to prospect meetings. Use their numbers for assets under management to project confidence in your offerings, she says. “You’ve got to be able to present a team effect,” she says.

Lloyd says TPA firms like hers can ease the transition for new retirement planners. “We’ll help the advisor meet with clients to make sure that we are designing something that is appropriate and tax-efficient for that particular employer,” she says. “It helps to expand their wheelhouse of knowledge and capabilities.”

Alfier says it’s also important to team with a sales-oriented, but not a product-selling, TPA. “Take them on ride-alongs,” she says. “Learn the questions they ask and why. Knowing the goals of a prospect will help you determine the most appropriate plan of action for them and the best place to put their retirement plan assets.”

The complexity from a regulatory, legal and just structural standpoint requires some experience. Where we tend to see the most success is people who partner with others who bring a skill set as well.
Phil Chisholm, VP for product management, Fidelity Investments

Good connections with TPAs also can lead to new clients, according to DeSilva, who says linking with ADP means teaming up with 200 sales representatives already engaged in the space. “Working with some firms requires the advisor to do all the legwork,” he says. “Working with ADP, you partner with those sales representatives to go and capture business.”

Chisholm says it’s important to limit partnerships with recordkeepers, who set up the plan’s platform and track assets, in the early going. “Work with a couple of them,” he says. “It’s hard enough to understand the marketplace. The more that you work with, the more you have to learn everybody’s operating model, their product lines, and the complexity to go along with it. If you can keep it to a manageable size as you’re starting out, the better off you’ll be.”

Poole, of Kentucky Planning Partners, says advisors also will help themselves, as well as plan participants, if they keep those recordkeepers’ platforms simple, with a limited menu of choices for account holders. “The majority of our lineups are going to the household names that have a history of good performance and keep the expenses low,” he says.

Alfier suggests getting to know different wholesalers and learning everything you can about their products. “You are going to be responsible for the great retirements of your clients and their employees,” she says.

“They are going to rely on you to put their money in the smartest place for them, based on their demographics and goals. You need to know who to suggest.”

Chisholm says brokers also should assess what they have available in-house. “If the resources exist within your own firm, leverage them as much as possible.”

Associating with a well-established registered investment advisor, such as Global Retirement Partners, is also a good way to “gain access and have ongoing exposure to tools, resource support and intellectual capital,” Oswald’s Kulchar says.

Learning the Trade

Training is a necessity, but it’s also an excellent avenue for benefits brokers to explore whether they want to expand into the space. “It’s a good way to look without exposing your bottom line,” Adams says.

Some of the essentials can be gleaned from potential partners. “We do a lot of educational events for advisors,” Lloyd says of her TPA firm. “We do mini boot camps to try to help new advisors in our area to get introduced to this space, terminology and what will be expected of them from companies.”

Poole says it’s important to pursue training and accreditation to help business owners feel confident you will manage their employees’ savings well and select the right TPAs and recordkeepers to ensure compliance.
“Do anything you can do to add an extra little bit of validity to yourself,” he says. “That’s what you’re selling first and foremost.”

Two designations are particularly well recognized in the industry: AIF (Accredited Investment Fiduciary) and CPFA (Certified Public Finance Administrator).

“The AIF designation immediately demonstrates the advisor is working toward the best interests of the clients and is well qualified to do so,” Poole says. “The CPFA reinforces a high level of education and experience.”

Alfier says the AIF will help differentiate newcomers from their competition. “Part of the training will give you clear knowledge of who constitutes a fiduciary and what is required of one,” she says. “It will also give you the knowledge to keep yourself from becoming a fiduciary—some broker-dealers will not allow their brokers to act as fiduciaries. You don’t want to do the wrong thing.”

Chisholm says the education should be ongoing as the practice grows. “Rely on the industry as much as you can and basically absorb as much as you can in the marketplace.”

Whom Do You Know?

Benefits brokers are accustomed to leveraging connections, and the same networking skills will open doors for advisors entering the retirement planning space.

“Cold calling is a very difficult world,” says Chisholm, who says new arrivals will find leads from the usual sources, such as local chambers of commerce, but also from CPAs, auditors, commercial lenders and others with ancillary connections to retirement planning. “These businesses provide other services, so you’re not competing with them; you’re complementing them.”

Poole suggests joining human resources groups to meet the people who are picking 401(k) advisors. “They’re in every city,” he says.

Industry conferences can be expensive, Chisholm says, but they’re an excellent place to build networks with people in and out of your region. NAPA’s annual 401(k) Summit is a popular option for many in the industry, he says. “It’s just a great way for someone who’s in the market to truly start interacting with other folks, leveraging best practices, building contacts and gathering ideas on how they can advance their business.”

The number one cost in retirement is healthcare, so bridging that gap is important for us. A benefits broker/financial advisor—someone who can wear both hats—really brings a high level of credibility to the table.
Joseph DeSilva Jr., SVP and general manager, ADP Retirement Services

Chisholm says he’s also seeing growth in regional, college-style study groups, with advisors and others in the industry gathering periodically to share ideas and knowledge. “Those are usually very helpful for people to get up to speed and learn what other people are doing,” he says.

Networking with NAPA and affiliated groups is also critical to tracking what’s happening in Washington. “With a new administration, obviously the political direction is going to change, maybe dramatically,” he says. “That’s where industry groups will be very helpful for someone who’s less experienced. They’ll help raise awareness of areas that advisors and brokers are going to have to pay special attention to.”

Alfier recommends connecting with college alumni groups and also with ProVisors, a networking group for professionals that is active in California and various regions of the country. “They are very selective about membership in that they don’t allow too many people in the same profession to be in the same group,” she says.

Alfier also suggests getting involved with groups affiliated with plan sponsors. “Determine your niche and learn everything you can about it,” she says. “For example, manufacturing companies have very different personalities and challenges than professional groups, i.e., doctors and lawyers. Just because you specialize doesn’t mean you can’t ever do anything else. You need to grow, but start where you’re comfortable.”

A Ready-Made Niche

Financial wellness programs, designed to help employees take a holistic approach to managing money, are a natural way for benefits brokerages to break into the retirement planning space. Brokers can capitalize on their knowledge of healthcare costs and coverage as they talk to both employers and employees about the best way to meet existing financial obligations and prepare for the future.

Seven out of 10 workers say their financial situation is their greatest cause of stress, according to the American Psychological Association, and studies by the peer-reviewed journal Health Affairs and others have shown that stress drives up medical expenses and drives down productivity.

Financial wellness programs generate a return on investment of $1 to $3 for every dollar spent, according to the Society for Human Resources Management. “The concept of wellness has a great deal of resonance with employers because it’s a cost savings,” Adams says.

Sometimes the assistance can be rudimentary, such as helping individuals learn how to better budget their living expenses so they can save for the future. Other times, the conversation will need to be comprehensive.

“A lot of customers and their employees are really thirsting for knowledge broadly around financial services. It could be their insurance, their disability, college planning or other benefits that they have,” Chisholm says. “People are overwhelmed. People don’t consider themselves experts, and it’s daunting. It’s very difficult to figure out where all the pieces come together.”

For business owners, the conversation can focus on how helping their employees alleviate financial stress helps the company’s bottom line. “That’s another way to show your value, when you’re saying, ‘Hey, this employee is now going to able to retire at 65, which means you don’t have to keep paying this higher salary, these higher health benefits,” Poole says. “You can—over a one-, three-, five-year basis—show the progress that the plan is making. I think business owners place a lot of value in that.”

DeSilva says those education efforts are important for employees, too, because they often fail to anticipate the medical expenses they might face in retirement. “The number one cost in retirement is healthcare, so bridging that gap is important for us,” DeSilva says. “A benefits broker/financial advisor—someone who can wear both hats—really brings a high level of credibility to the table.”

Advice for the Advisor

Not everyone who ventures into the retirement space will succeed, of course. Sometimes it’s because a company’s motives are misplaced. “The business of working with retirement plans is chock-full of brokers—and I’ll use the term pejoratively—who don’t know anything about retirement plans,” Adams says. “They see a pot of money, and, particularly in a commission-based structure, they think it’s pretty easy pickings. They don’t appreciate what’s involved with it.”

But advisors with the right focus also veer off path. Among the most common pitfalls: they overextend themselves. Chisholm says a friend recently departed the space after realizing he’d taken on more than he could handle. “He was trying to offer too many things to his clients because he was trying to build up his business,” he says.

Advisors need to ensure the commitments they make for enrollment meetings and other aspects of a plan are sustainable as their business grows. “Ultimately you have to make sure you’re successful in hitting your profitability targets,” Chisholm says. “You have to be smart about sometimes looking at the business and saying, ‘What kind of services can I provide cost-effectively, profitably, that are going to allow me to be scalable and have a complete book of plans?’”

Again, building strong partnerships with those who do the back-office work and others is critical, as is building a support team within your firm. “Most of the successful groups that we work with tend to have built out teams,” Chisholm says. “You can have 40, 50, 100 plans in your book of business, but that’s going to require you to understand and clearly articulate to your clients what services you do, what you do not do and how you justify the pricing for those services. Obviously, the more things that you do, you’re going to need a team to support you through that process.”

Chisholm says it’s important to benchmark fees carefully. “On one hand, you don’t want to be pricing yourself out of the market,” he says. “On the other hand, you don’t want to be underpricing your own services and selling yourself short.”

Early adjustments may be necessary. “Don’t be afraid to take hits at the beginning, maybe reducing your compensation or whatever, to really position yourself in the industry,” Bukaty Companies’ Rivera says. “Everything works phenomenally when you start getting referrals, to the point where you’re not really working as hard because people know who you are and what you’re doing.”

You can have 40, 50, 100 plans in your book of business, but that’s going to require you to understand and clearly articulate to your clients what services you do, what you do not do and how you justify the pricing for those services.
Phil Chisholm, VP for product management, Fidelity Investments

Brokers should also consider starting with smaller plans. The profits aren’t as good as large plans, but the competition can be less fierce and there are more opportunities among employers who don’t have existing 401(k) plans. “Most retirement advisors are moving up market,” Winge says. “Perhaps focus on plans under $5 million.”

Chisholm says advisors would be wise to ensure they’re tech-ready or team up with people who are. For years, employers eschewed online access, saying most people in their workforce didn’t have access to computers or interest in checking their plans. “I think those days are over,” Chisholm says. “Everybody has a smart phone, everybody knows how to load an app onto their phone.”

As advisors build relationships with clients, they need to remember that humility and honesty go a long way in making inroads, according to recent arrivals in the space as well as industry veterans.

It’s important to acknowledge “when you don’t know what you don’t know,” Chisholm says. “The last thing you want to do is put yourself in a situation where you are saying something inaccurate because you don’t want to look like you don’t have all the answers,” he says. “People are going to recognize we can’t be experts in 100% of everything. If there’s any area of uncertainty, it’s always OK to say, ‘Let me do a little research on that and get back to you.’”

Projecting confidence is important, Rivera says. So is owning up to a mistake. “The more you own it, the more people will trust you, and the more you have an opportunity to really grow in the business,” she says.

Patience is also critical for advisors and brokers breaking into the space. Poole says it can take 18 months from the first phone call about a 401(k) to the time the plan goes live. “Don’t get discouraged,” he says.

“There’s a long sales cycle to acquire any client. Business owners, HR—they’re doing a lot of different things, so be patient. Just stay at it.”

As brokers and advisors establish themselves, they need to distinguish themselves from their competitors. An advisor may become known for being able to simplify complex plans for buyers, for instance.

“Establishing that brand is what is going to start to differentiate you from the plethora that are out there,” DeSilva says.

“Learn how to listen well,” Alfier says. “People—prospects—love to talk about themselves. Find out what is keeping them up at night, then provide a solution. Anyone can talk about money. Learn how to be different.”

Lease is a contributing writer.

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