Companies with a successful core discipline should always evaluate complementary services for their clients. This is no different for investment advisors serving the individual marketplace. Your clients trust your knowledge, insights and services, but they are constantly hearing from your competitors, some of whom have a full of complement of services to offer. Introducing new services is a risk, as poor delivery in a new service line can lead to lost clients and reduced reputation. However, by introducing additional services successfully, you can increase your revenues and profits in addition to building sturdier client relationships.
Common Errors of Entering the 401(k) Sector
Those who enter the 401(k) marketplace often select a service provider because someone else recommended them without due diligence, which is a big risk considering you will have to follow their service model. The 401(k) service sector is in a mature service phase, thus your entry risk is reduced if you select a service provider that best fits your current delivery strategy. The four key criteria include:
- Investment menu solution
- Participant communication strategy (integration and leveraging their services)
- Service model (low price, efficient or premium)
- Price/Revenue model.
Another common mistake advisors make when entering the 401(k) marketplace is looking solely at out-of-pocket fees to the client, the “sell low” price solution. For those of us who have been around for a long time, this often results in a higher overall fee to the participant. This is not going to meet the fiduciary prudence test going forward and may put the plan sponsor at risk, especially if the revenue to the advisor and service providers is substantially higher compared withto similar service providers.
Working With Investment Advisors
Instead of selecting recordkeeping service providers and third-party administrators, some investment advisory firms with proven solutions will permit independent investment advisors to sign up to use their service delivery models. This is as close to plug and play as you can get, but the key variable in the selection is making sure the solution fits your current delivery model. Investment advisors that focus on individuals are a natural progression to the defined contribution/defined benefit service sector, especially if your clients are small-business owners or individuals with influence at their company.
Managing Your Clients’ 401(k)