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.
- 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.
- 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?
- 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.