Assessing a potential prospect can be tricky. Knowing what questions to ask at the proper time in the sales cycle can be the key to landing and satisfying a new client. Broad, open-ended sales questions may help find out what’s going on in your prospect’s world, but they run the risk of wasting what little precious time that a prospect may give you.

When prospecting for a 401(k) plan, there are two main decision makers: 1) the CFO with little time to waste, or 2) the HR director who typically has too much on their plate to begin with and doesn’t want more. By merely calling these prospects, you are interrupting the status quo and you must be prepared to give them a compelling argument to make a change. As they say, change only happens when the pain of staying the same is greater than the pain of making a change.

Prospecting for 401(k) plans is a three-step process: 1) Find Promising Prospects, 2) Call The Prospect, and 3) Meet With The Prospect. It can be that easy as long as you are well prepared and know when to ask the right questions. Whether you are new to 401(k) plan prospecting or an experienced 401(k) advisor trying to train your staff, this guide will list important questions that will engage a prospect. You will also find some key questions to avoid during the sales process.

1. Find Promising Prospects

Finding the prospect is, believe it or not, the easiest part. There are plenty of lists available for 401(k) plans to call on, the trick is to find one that you may already have a relationship with. Relationships are key in this industry, and a great 401(k) advisor will have great relationships with their clients. Working with a third-party administrator (TPA) can help you pull a listing of potential candidates in your area and provide a warm lead.

2. Call The Prospect

Once you have a list of targets, calling on the prospect may be more difficult. Even if you have a relationship with a decision maker, it may be difficult to catch them directly on the first try. You may have to call several times before you can get the right connection, but when you do, BE PREPARED! Remember, plenty of demographic information can be gleaned from the Form 5500, which is public record and may easily be obtained at the Filing Search tab of www.efast.dol.gov.  Of course, the assets, the number of participants (both eligible and participating} and the employee and employer contributions are clearly indicated on the first few pages, as are the availability of participant loans. There are several codes detailed in the “Plan Characteristics” questions which indicate if there is an age weighted or cross-tested profit sharing allocation, if there are matching contributions, and if participants are directing the investment of their account balances. Ask a TPA to provide you a complete listing of these codes and their meaning. Maybe more important demographic questions  you could ask would be:

• Is there a high percentage of job and skill diversity among your employees?
• What is the eligibility requirement to join the company 401(k) plan?
• How many shifts do you have?
• How many locations do you have?
• What percent of employees are within five years of retirement?

These demographic questions can be the solution in helping you build your value proposition and provide the “why” for why is it worth the pain to change to your services?

Once you have the demographics, get to the operational issues. Certain, specific questions can show your industry knowledge and spark further conversations:

• Does your plan offer auto enrollment and auto escalation features?
• Do you process payroll internally or through an outside vendor? Which vendor?
• How often can eligible employee enter the plan? Change their savings rate?
• What do your plan participants say about the plan? The website? Statements?
• Does the company 401(k) plan allow for loans and/or hardship withdrawals? Are these provisions being abused?
• Does the company have a Health Savings Account (HSA) program?

Large plan filers (those with more than 100 participants) must include more detailed information on the Form 5500 and related schedules since they must attach an opinion from an Independent Qualified Public Accountant. These audited financial statements include more information such as the eligibility requirements, the underlying investments and several other operational issues. They may list the auto enrollment features of the plan (if any), if the plan has a Safe Harbor Provision or in-service distribution options. What it won’t list is very specific questions regarding the plan investments:

• Are you currently contracting with an ERISA 3(21) or 3(38) Advisor?
• How were the investment options chosen? How often are they reviewed?
• How do employees make investment allocation decisions? Worksheets, online questionnaires?
• Do you have an investment policy in place?
• Who holds the largest account balance? (A $10,000,000 plan that saves 50bp on expenses saves $50,000 a year, proportionately benefiting the largest account holders.)

Service issues and concerns are not listed in the audit, but can be important to the decision makers:

• What are the top concerns of your employees? Are there other enhancements you want to make to the 401(k) plan?
• Do you currently survey employees to gather their concerns and understanding of company benefit programs?
• When was the last enrollment meeting or group education meeting? How frequent would you like someone onsite to work with your employees?
• What types of issues arise, i.e., payroll transmission, compliance testing, notices, timely responses, that has caused you concern enough to consider a change?
• Is Fiduciary protection, improved employee retirement readiness, or overall financial wellness for your participants important to you? Which is most important? Least?

3. Meet With The Prospect

Once you have a meeting in place, summarize your findings to a one page sheet showing specific improvement areas and procedures that you will help put into place once you are hired. Possible opening questions can include the following:

• Tell me what you would improve about your 401(k) plan?
• There are two types of 401(k) programs, those that involve an Advisor to assist you and your employees and those that don’t. Which one do you have?
• What goals are you working to accomplish with your company 401(k) plan? ‐ Increase participation ‐ Increase contributions ‐ Decrease loan usage ‐ Decrease hardship withdrawals ‐ Improve employee retirement readiness
• How does your plan compare to companies you compete against for the same employees?
• What would need to change for us to have an opportunity to serve your plan?

Do not automatically assume you need to change everything to show you can bring enhanced services to the plan. Taking over the plan as Broker of Record is the first goal. There may be nothing wrong with the plan that more attention and care won’t fix. Making small changes, for instance, to the investment lineup or adding some enhanced plan design options, might make all the difference in the world to the client and won’t totally disrupt the day-to-day activities of the company. Remember, you’re here to help the client.

You may also find business development value in our article “The 7 Step Guide to Growing your 401(k) Business”. Feel free to call us with additional questions on developing your 401(k) business. We love to partner with advisors for a win-win relationship.

Most financial advisors are skilled salespeople, but 401(k) advisors require a different sales approach and an entrepreneurial mindset. The buyer isn’t always the end user and sales pitches are aimed at a human resource executive, a CEO or a CFO, rather than plan participants. Most financial advisors are more accustomed to selling to individuals, whereas 401(k) plans, especially those of larger organizations, involve tailoring conversations to a decision maker or committee before any presentations are made to the ultimate users; the participants.

In addition, to be a successful retirement plan advisor the service model must be tweaked. Whereas financial advisors meet with clients perhaps a few times per year, an average 401(k) plan client requires more attention. Advisors are expected to provide investment monitoring reports, set up meetings for new plan enrollees, and facilitate fiduciary committee meetings several times a year.

For the financial advisor who seriously wants to increase 401(k) business or those who want to get started in the 401(k) business, there is plenty of opportunity. Those willing to do a top-notch job as a 401(k) advisor will find plenty of occasions to develop and increase their book of business.  Following the 7 steps below will get financial advisors closer to that success.

 

1. FIDUCIARY DIFFERENTIATION: 

As a 401(k) advisor, you have to determine your market and which 401(k) plans you will target. Will you target larger plans or plans that are smaller in asset size? If you are a registered investment advisor, you will also have to determine what your fiduciary role will be, will you be a co-fiduciary, or a type of ERISA fiduciary? If you are a broker, be mindful of rules the Department of Labor implements that may define you as a fiduciary. Acting as a fiduciary allows 401(k) advisors to separate themselves from the crowded financial advisor competition. The fiduciary responsibility also helps to set trust by making it clear that all recommendations made are based solely on the clients’ best interest.

To understand Fiduciary responsibilities better, you can read the articles below.

• Are You a Fiduciary?
• Fiduciary Responsibilities for Retirement Plans
• Types of ERISA Fiduciaries
• Fiduciary Checklist for Hiring Service Providers

 

2. KNOW THE 401(k) BUSINESS:

There is an awful lot to learn for those that focus on retirement plans. The industry is always evolving, and anyone from novice to expert needs to dedicate time in order to keep their skills, and knowledge base, sharp. Get in-depth fiduciary training and education as well as investment analysis and consulting expertise. It’s most likely that financial advisors working in this specialized area will be deemed a plan fiduciary. They need to understand how to both assist plan sponsors in mitigating their fiduciary liabilities, as well as their own. There are a number of resources for this type of education. The National Association of Plan Advisors, part of the American Retirement Association, offers credentialed programs for the Certified Plan Fiduciary Advisor (CPFA) or Qualified Plan Financial Consultant (QPFC).

Having a working knowledge of the Employee Retirement Income Security Act (ERISA) of 1974 is pertinent. Learning the act’s rules and regulations is the main differentiator between wealth management and retirement plan advising. It’s almost like getting a quasi-law degree and advisors must be prepared to invest time acquiring this specialized kind of knowledge. There are modules on retirement plans included in the Certified Financial Planner (CFP) Designation, as well as online resources provided by the Society of Certified Retirement Plan Financial Advisors.

However, advisors don’t need to be ERISA experts. They can partner with record-keeping firms or independent third-party administrators (TPAs) who can provide that expertise. Advisors do need to have somewhat of a technical understanding of the inner workings of 401(k) plans, though. For example, knowing plan design and the functions of different vendors such as record keepers and TPAs to be able to hire and monitor experts.

3. SEEK OUT THE 401(k) EXPERTS:

For 401(k) advisors with limited retirement plan expertise, to look smart on 401(k) plans, surround yourself with smart 401(k) people that already have the certifications and knowledge you need. Being a financial advisor is difficult enough, so you aren’t expected to become retirement plan experts. However, it is important to have enough knowledge to know when to bring in the experts so that your clients are not at a disadvantage. As a financial advisor, you need to augment your services and show why your services have a value compared to the competition and the best way to do it is to rely on retirement plan consultants and ERISA attorneys for advice, consulting, and knowledge. It doesn’t make you look bad to bring in another subject matter expert. You are the relationship manager, the “head coach’; and you have the power to influence the client to move one way or another because of your relationships. Also, remember to avoid the producing TPA. Producing TPAs are firms that also have an advisory business. While people can argue about the value of producing TPAs, you have to realize that since they are in the 401(k) advisory business, they are also your competition.

 

4. DEVELOP STRATEGIC ALLIANCES:

Make it easier for other business professionals in your circles of influence to understand the 401(k) business. Partner with, and educate, independent payroll providers, property and casualty agents, auditing and CPA firms. Teach them about the state-of-the-art options in plan design, and tax benefits of retirement plans at both the corporate and employee level. Many of these people are very outdated in their knowledge level, which creates big referral opportunities. Getting close to those that know key decision makers in the 401k advisor hiring process makes it easier to get introduced to the right people in order to spend the right amount of time in closing and on-boarding new business.

 

5. EDUCATE AND PROBLEM SOLVE:

Once you’ve solved a complicated situation for one client, look to apply the solution to other clients. If one client had an issue, very often so do others and often don’t know it. It’s exactly how niche markets are developed and can lead to a thriving practice.

Certain types of businesses can have similar objectives for their 401(k) plans, and thus similar plan designs will work best for them. For example, medical specialist practices that have a handful of very highly-compensated doctors, as well as a handful of lower-compensated staff, are usually interested in methods to maximize the amount of money the doctors can contribute to a plan. A specific plan design, one that combines a 401k profit sharing plan with a cash balance defined benefit plan, for example, is a good way to do it. Advisors who specialize in this approach gain credibility and can win business, and referrals, from firms that are similar.

 

6. OBTAIN ORGANIC BUSINESS REFERRALS:

The most valuable form of marketing is word-of-mouth. Many great leads can come from an advisor’s existing client base, even if the clients are not in charge of a company retirement plan. When wealth management clients are familiar with 401(k) services offered, they can provide referrals year after year. A way to ensure your client base is knowledgeable enough to refer is to provide educational platforms and experiences for clients and prospective clients that allow them to experience the level of expertise and understanding required for proper retirement strategy including extenuating industry circumstances.

However, ensure to qualify a referral and limit wasted time with the wrong person that has no influence or authority to make a decision on a 401(k) plan. Get in front of the right person and bring in the right resources to close. You have to make a conscious effort to distinguish between wealth management and retirement planning when speaking with a prospect and ensure the right questions are being asked. Here are some good qualifying and discovery questions to ask (link to the qualifying and discovery questions).You also need to know when to lean on a TPA that can come in and put a proposal together for a group-level conversation and help close the business.

7. BE SEEN AS A LEADER:

Use your strengths as the relationship specialist to your advantage. Share informative content with your client and prospect database. Use social media, emails and blogs, if your firm allows them, to share content that will show your expertise. You can write, use videos or podcasts to get your message across. Creating this type of content is great for branding and overall business development and the most cost effective tools you can use. Developing original content can be time consuming and maybe you don’t yet have the expertise to do it. Your firm may have access to pre-approved third-party content that you can use to show you are thinking of ways to help your prospects. Distributing and sharing such material as your own helps to ensure you are top-of-mind when the opportunity arises. There is no shortage of available information, but sharing information from experts you know you can lean on to close a sale shows your client that you have a network of quality people that can ensure a quality plan design based on their needs. The EJReynolds blog regularly produces quality content geared to keeping plan sponsors informed as well as helping advisors keep their clients knowledgeable.

Building any type of business isn’t easy. If you are dedicated to your clients and dedicated to the role of a 401(k) retirement plan advisor, you will succeed as long as you show a value to the service you provide. Although the sales process is longer (these plans do not close overnight), they tend to be sticky assets that will help you retain assets under management with additional sales opportunities. With so many changes to the retirement plan marketplace which can have plan sponsors reconsider their current plan providers, it may be the opportunity you need to exploit and build a 401(k) advisory business.

Under the Department of Labor (DOL) regulations, your retirement plan will need to maintain an ERISA Fidelity Bond. A fidelity bond protects the assets in the plan from misuse or misappropriation by the plan fiduciaries. Plan fiduciaries include the plan trustees and any person who has control over the management of the plan and its assets.

Required ERISA Fidelity Bond Amount

At the very least, the bond must be equal to 10% of the value of the total plan assets, with a minimum bond value of $1,000 and a maximum bond value of $500,000. For the first year, the bond amount will be based on the estimated amount of assets that will be handled by the plan for the year.

If you have non-qualifying assets more than 5% of the total plan assets, additional requirements apply. Non-qualifying assets are those assets not readily tradable on a recognized exchange. These may include limited partnerships, artwork, collectibles, mortgages, real estate, securities of closely-held companies and other assets held outside of regulated institutions such as a bank; an insurance company; a registered broker-dealer or other organization authorized to act as custodian for retirement accounts. Non-qualifying assets require additional bond coverage equal to 100% of these assets or could subject a plan to obtain a full-scope audit, where an independent CPA physically confirms the existence of the assets at the start and end of each Plan Year.

Why do I need an Erisa Fidelity Bond?

There are serious consequences for not purchasing and maintaining a sufficient ERISA fidelity bond. Not having this required coverage can be a red flag to the Department of Labor that they need to take a closer look at the plan. You are not only at risk for a DOL audit, but there are citations associated with not having this required coverage.

How do I obtain an Erisa Fidelity Bond?

As a convenience to you, EJReynolds has partnered with Colonial Surety Company, a national online insurance company that is U.S. Treasury listed and licensed in all states and territories. As experts in all aspects of ERISA regulations, Colonial Surety Company will ensure that you are properly bonded and that your bond is renewed prior to expiration so that your plan remains in compliance.

You can easily obtain an ERISA Fidelity Bond for your plan at:

my.colonialdirect.com/login/register_plan_sponsor?ref=FL0123

Or, contact EJReynold and we’ll connect you with one of our expert ERISA Bond partners.

You reached a great milestone when your organization became competitive enough to offer your employees a qualified retirement plan under ERISA (Employee Retirement Income and Security Act of 1974).

However, success can bring new challenges. As the assets of your Plan grow, so can your fiduciary liability, exposing you to loss and litigation.

As a Plan Sponsor, you can mitigate your risk by hiring service providers who agree to assume or share fiduciary liability. ERISA specifically describes the duties of Plan Administrator and Investment Advisors

in sections 3(16), 3(21) and 3(38) that can be outsourced to help you avoid risk and non-compliance with federal regulations. (See Types of ERISA Fiduciaries).

Here is a checklist of some questions to ask yourself in deciding if the time is right for you to hire service providers, and a list of some areas to address with a potential provider.

Plan Design

Plan design is an important part of any plan. A solid plan design and attention to the execution of these features will help plan sponsors maximize the benefit of their plan for themselves and their employees.

• Has it been more than 18 months since you reviewed your Plan Document?

• Are you certain you have maximized benefits for owners and key employees?

• Does your Plan allow participants to make after-tax (Roth) contributions to their accounts?

Management, Administration, and Fees

The management, administration, and fees related to the operation of any retirement plan are important

factors when choosing a service provider. As mentioned previously paying “reasonable” fees and expenses

while ensuring that the management and administration of your retirement plan runs smoothly is a balance

that each fiduciary must meet (see Fiduciary Responsibilities for Benefit Plans under ERISA).

• Were you made aware of new plan design options on a timely basis?

• Does the administration of your retirement plan take too much of your time?

• Do you offer self-service features to help participants manage their own retirement accounts?

Participant Education and Retirement Resources

Ensuring that your participants have the resources available to make informed decisions and are kept up to date on the issues affecting their retirement plan helps plan sponsors motivate employees in making sound retirement decisions.

• Do you maintain a formal education program?

• Do you have regularly scheduled enrollment and education meetings?

• Are you happy with the percentage of employees participating in your retirement plan?

Investment Selection and Monitoring

The selection of investments in your retirement plan is as important as the design of your plan. Outsourcing these services to a 3(21) or 3(38) fiduciary can help limit the liability plan sponsors face when choosing and monitoring the investments (see Types of ERISA Fiduciaries).

• Has your investment policy been reviewed and followed in the last 12 months?

• Do you have a documented rigorous investment selection and review process?

• Does your plan offer all the appropriate core investment categories?

ERISA Compliance and Fiduciary Responsibility

Understanding your role as a fiduciary of the plan is important in meeting the high standard of conduct defined under ERISA. To see if you are a fiduciary of the plan, your responsibility as a fiduciary, or how to mitigate your liability as a fiduciary read our recent articles: Are you a Fiduciary?, Fiduciary Responsibilities

for Benefit Plans under ERISA , and Types of ERISA Fiduciaries.

• Are you provided excellent guidance, education and support in understanding your fiduciary responsibilities?

• Do you have a fiduciary assurance feature related to the suitability of the investment monitoring process and fund lineup?

• Do you have all the tools and resources needed to help discharge you of your fiduciary responsibilities?

Download EJReynolds’ 401(k) Compliance Review to assess how well your 401(k) Plan is operating up to today’s standards.

EJReynolds, along with your advisor, can assist you in reviewing and defining you plan objectives, help you be more prescriptive with your investment options, and more easily communicate with employees who want to understand how to achieve their own retirement income goals.