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The Big Problem with 401(k) Plan Clients That Could Lose You Business

By Garrett Keyes June 11, 2019

Advisors of 401(k) plans could lose business if they don’t help plan sponsors educate plan participants about retirement plans, advisors caution.

The warning comes as new research reveals employees do not understand their 401(k) plans as well as advisors may think. And a 401(k) knowledge gap between employers and employees “can be a negative for the advisor,” spelling a loss of business, Nathan Fisher, founder and senior executive vice president of Fisher Investments 401(k) Solutions, warns. “If employers think employees are unhappy with their plans, advisors could lose the employers’ trust and business,” Fisher says.

A new study from Fisher Investments 401(k) Solutions found that while four out of five employers say their 401(k) offerings are competitive to plans offered by similar businesses, only half of employees agree. Additionally, while more than 80% of employers say their 401(k) plans give employees enough financial information, only about half of employees agree, the study of 1000 participants and 500 employers shows.

Potential losses for advice firms also include future business prospects, which Dennis Bielik, managing partner of $3.2 billion RIA TCG Advisors, indicates could be significant.

“If firms go out there and land a 401(k) plan with 100 employees, they also just got 99 new [private wealth] business prospects,” Bielik says. For “nine in 10 employees, the only advisor they know is the one on the plan,” he adds.

If your firm “gets 10 plans a year with an average of 100 employees on the 401(k) plan, you just got 1000 wealth management prospects,” says Bielik. “It’s an incredible opportunity.”

TCG’s second-largest business focus is on the 401(k) market. The firm has already doubled its position in the space year-to-date, Bielik claims, overseeing about $500 million in 401(k) assets.

But plan participants aren’t at fault for not understanding everything about their 401(k)s, Mark Chamberlain, chief executive officer of $1.7 billion RIA Lakeside Wealth Management Group, says.

The “financial IQ” of the average 401(k) investor is lower than most advisors think, Chamberlain says. “They are really smart people but investments are not their thing,” so it falls on the advisor to educate plan participants, he says. As an advisor, he “can go out and get more 401(k) clients. But investors have one shot of being ready for retirement,” he says, adding that’s what he loses sleep over.

Of Lakeside Wealth Management Group’s $1.7 billion AUM, just north of $1 billion comes from 401(k) business.

To bridge the apparent 401(k) understanding gap, Fisher recommends advisors provide more financial education to 401(k) participants.

“If 401(k) advisors sit down and do two thirty-minute sessions with plan participants, they can confirm for themselves if there is a lack of investment education issue,” Fisher says. And from there, advisors can determine the best solution.

Dennis Bielik

“All plans have a different maturity level and call for different approaches” when it comes to financial education, Monica Garver, vice president and senior financial planner of RTD Financial, says.

Some educational components that may work include “on-the-ground meetings with participants, webinars, email messages, [and more digital options],” she says.

“Companies are made up of all different generations, so a multi-medium approach is probably going to be the best,” her colleague Nicole Offerman, retirement plan consultant, adds. “Some employees are going online, and some are referring to paper pamphlets they receive [with 401(k) information],” so using many methods is probably the best way to reach the most people, Offerman says.

RTD advises on 60 retirement plans totaling almost $500 million.

Before determining which ways to educate 401(k) participants, advisors should “determine if advisors will provide the education themselves or partner with others to do [provide education],” Fisher says.

Advisors can either “find another advisor who provides educational services, find a recordkeeper who can handle it, or see if there is online software that can help participants,” he adds.