Let’s face the facts. Financial advisors have two very large asset gathering strategy concerns going forward.
First, clients are becoming increasingly aware of the fact that many of the investment management services you provide to them are available online at much lower annual costs are many times just a click away.
Second, every financial services company on the planet is competing for the same after-tax brokerage accounts of the same individual investors. It is becoming increasingly hard to gather client assets that everyone else is chasing. Prospecting for new client assets is even worse.
Faced with these two advisory business realities, how is an advisor supposed to get excited about a 2018 campaign to gather more financial assets to manage?
Based on my experience, the answer lies in your existing client company 401(k) retirement plan accounts. These accounts are the “low hanging fruit” to gather both existing client and new prospect assets to manage.
I know many advisors provide loosely structured “pro bono” investment advice on company 401(k) retirement plan accounts in order to maintain existing client relationships. Free investment advice on existing client assets will not grow your practice.
You need a logical, organized, and disciplined compliance-approved campaign to gather, manage, and communicate investment management changes to the individual company 401(k) retirement plan accounts in your client households.
The current all-time stock market highs and heightened fiduciary investment advice climate is a once-in-a-career asset gathering opportunity to gather company 401(k) retirement plan account assets.
Here’s what you should do:
1. Ask your best clients for a copy of their default company 401(k) retirement plan menu and their year-end 2017 account statement. Not only will you find more client assets to manage, think about the prospecting list you are putting together.
Every experienced advisor is frustrated by their lack of client referrals. It is common knowledge that there are great individual investor prospects who work at the same company as your best clients.
2. Ask if they would like to have a copy of the prospect’s company 401(k) retirement plan account main menu mutual fund options.
Forget waiting for a client referral in this case. Your first approach to this prospect would be a complete diagnosis of their investment management problems in their company 401(k) retirement plan account.
For every client company 401(k) retirement plan account statement gathered, you will have multiple individual investor prospects to talk to who work at the same company.
As is every other detail in the investment advisory world, this asset gathering strategy needs to start with compliance.
Individual company 401(k) retirement plan accounts are still defined as “held-away” assets at most broker dealers. These accounts are thought to be not actively managed by an investment advisor associated with the broker dealer.
Most broker dealers have a policy and procedure in place that outlines how affiliated investment advisors can get paid on assets not held at the broker dealer or clearing firm.
3. Don’t make a phone call or send an e-mail without completely understanding your current broker dealer regulations.
Ask your broker dealer for their interpretation of the SEC Custody Rule regarding held-away client accounts. You don’t need to have custody to manage a client’s company 401(k) retirement plan account and bill for the investment advice.
4. Figure out an investment advisory fee schedule.
I am an RIA, so I bill quarterly investment advisory fees based upon the asset value in the individual company 401(k) retirement plan account. That arrangement may not work at your broker dealer. You may have to bill a flat fee; like a financial planning fee every quarter.
Some company 401(k) retirement plan providers are easy to work with on third-party investment advisor billing of individual company 401(k) retirement plan accounts. Your broker dealer clearing arrangements may actually help you here.
Other company 401(k) retirement plan providers are not helpful at all. You may have to open a new quarterly client billing account in order to get paid your quarterly investment advisory fees. You may also have to explore ACH or credit card billing options.
As you know, any client investment advisory and fee billing arrangement is all about disclosure. The entire process has to come together in your investment advisory agreement. Your client disclosures have to outline all of the above items and the limited investment advisory authority that you have taken on for your client’s company 401(k) retirement plan accounts.