New fiduciary rules have made the 401(k) space increasingly intimidating for advisors. Recently, Tunia Mycyk, Director at AssetMark Retirement Services, spoke with several 401(k) adopters to discuss how they have overcome this obstacle and are growing their businesses because of it.
The rationale to service 401(k) plans is pretty clear for advisor David Hohman of Pittsburgh:
“As advisors, we’ve got to build a moat around our business-owner clients or they will simply go elsewhere.” He says that 401(k) plans are a part of his business because they offer an opportunity for business owners to provide a crucial employee benefit while also reducing their own income tax exposure, preserving wealth and helping transfer that wealth to heirs. “I simply don’t want to pass those opportunities off to someone else.”
Hohman’s comments ring true with advisor Vickie Garcia of Arizona, who also sees the client-sourcing upside.
“The 401(k) space allows me to highlight my approach much more broadly,” says Garcia. She credits 401(k) plans as a key driver of growth for her business, citing multiple planning and investment management engagements with sponsors along with a pipeline of prequalified referrals.
With opportunities like these available, why are so many advisors unwilling to enter the space?
David Younis, a planner in New York, sums it up well: “Advisors tend to focus on personal financial planning and feel out of their element dealing with the complexities of plan design and the ongoing compliance requirements.”
So how can advisors who are new to the plans avoid this pitfall, manage risk and tap into the incredible client-sourcing power of 401(k) plans?
Together, our interviewees defined three key strategies.
STRATEGY 1 – REMEMBER, IT’S STILL A RELATIONSHIP BUSINESS
Our adopters agreed that one key to demystifying 401(k) business is to remember that it is ultimately the same as your core competency. While administration may differ, the conversations and approach are the same. Today’s plans offer individual investors access to world-class investment options and help in meeting their goals.
Hohman cites these investment options as an incredible opportunity for participants as well as a major boost to his personal value proposition: “We’re not in the business to discriminate. We are here to help people meet their desired outcomes. Through 401(k) plans, I can offer access to best-in-class investments, just like high-net-worth people have. That is incredibly valuable.”
When this egalitarian notion is coupled with the chance to deliver financial literacy to sponsors and participants alike, the relationship side of the business shines. Garcia says that this educator role is key in managing risk, generating referrals and
even advisor satisfaction. “I love to educate, and these plans offer a chance to make a difference and more. That’s what I get excited about,” she says.
• Get tactical with business owners on the tax benefits of implementing a plan
• Shift your perception of participant meetings from a necessary box to check to an interactive learning experience
• Drive home education with participants, focusing on topics like current markets, long-term investing and the
impact of plan loans
• Partner with sponsor HR departments to ensure meeting content is adding value
STRATEGY 2 – TAKE A SYSTEMATIC APPROACH
Another winning theme identified by the group was to build a system for supporting your 401(k) business. To truly excel with this model, Garcia recommends diligence with touchpoints. “We offer education meetings, focus on communication and work to add value with our trustee meetings,” she says. “We also take the time to share our process on the front end to help everyone understand what to expect.”
Garcia shares that this model offers a good demonstration of how you run your practice for sponsors and participants alike. In an industry that is increasingly focused on technology and “self-serve” options, Garcia feels that personal touch-points are valuable to help bridge the financial literacy gap.
Younis agrees, noting that many advisors in this space simply write the business and return solely for annual meetings. He feels that in this environment, a systematic approach with additional touch-points can help manage risks and serve as a real differentiator.
• Build a schedule on the front end and hold yourself accountable
• Share your approach with participants and sponsors in a consistent way
• Engage administrative assistants to serve a project management role
• Assess the readiness of HR departments at plan sponsors and be ready to offer support
STRATEGY 3 – PARTNER
Perhaps the biggest single piece of advice raised by the group is finding partners to help shoulder some of the work, while helping offload some of the fiduciary requirements. Each cited working with a 3(38) investment manager as a key “win” in this area. “Having a relationship with record-keepers, administrators and a 3(38) investment manager is extraordinarily important. That’s been the biggest thing… you need a team,” says Younis. He called understanding the role of a 3(38) “huge” for his business and says he has embedded this into his process. In addition to a 3(38) distinction, plan investment options and fees were cited frequently by the group as key determining factors in selecting the right partner. “You need a robust toolbox—technology, fees, risk management, adequate diversification. With those, we have a remarkable ability to provide a variety of solutions,” Younis adds.
In addition to providers offering support, Garcia notes that new advisors contemplating the 401(k) space might consider another value-add partner—a mentor. “It would be worth giving up compensation to another advisor to understand and learn this business,” says Garcia. She reasons that many in this industry have little interest in the 401(k) space, so learning from an experienced advisor could set up a new advisor for future referrals from other planners.
• Partner with a 3(38) investment manager for support
• Ensure your plan has the investment options and tools to simplify administration
• Spend the time to understand the technology and distill and share this knowledge
• If new, consider taking on a mentor
THE BOTTOM LINE
Overall, the adopters we spoke with say that the 401(k) space is not fundamentally different than working with high-net-worth clients. The group notes that while there are some additional fiduciary hurdles with 401(k) business, they can be managed
along the way. It is worth noting that each of the advisors we spoke to learned the business by getting in the business. They say that success was ultimately defined by a willingness to learn, partner and systematize an approach.
Younis sums it up well: “The partnership opportunities far outweigh the learning curve with 401(k) business. If you listen, build good relationships and focus on serving clients first, everything else takes care of itself.”
AssetMark Retirement Services, Inc.
1960 Old Gatesburg Road
State College, PA 16803
This is for informational purposes only, is not a solicitation, and should not be considered investment advice. The information in this report has been drawn from sources believed to be reliable, but its accuracy is not guaranteed, and is subject to change. Investors seeking more information should contact their financial advisor. Financial advisors may seek more information by contacting AssetMark at 800-664-5345.
Tunia Mycyk is Director, Sales & Relationship Management, at AssetMark Retirement Services. AssetMark Retirement Services is a division of AssetMark, Inc. AssetMark, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission. ©2020 AssetMark, Inc. All rights reserved. 38951 | C20-15433 | 1/2020 | EXP 01/31/21 For general public use.