What makes a good advisor? Raising the bar at the next retirement plan review

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Plan sponsors would be unlikely to pay for the services of financial advisors if they didn’t believe they added value. However, many advisors could do a better job of reinforcing the value they bring to the table.

“The best consultants we work with do a really good job of communicating their value,” says Andy Strandquist, retirement plan counselor for Capital Group. “They are excellent at creating a value proposition statement and go out to plan sponsors and make it very clear what that is. It can be as simple as `This is what our philosophy is from an investment standpoint. This is how we are going to help you as a plan sponsor and help educate your participants.’ The best advisors tend to communicate that clearly.”

Strandquist shared advice on how advisors can do just that during Raise the Bar in Your Next Retirement Plan Review, a January 24 webinar sponsored by Capital Group.

“In terms of how to best communicate value, you have to first and foremost make sure it’s not focused on just one thing,” he said. “People who are not specialists tend to focus on the investments. But those who are specialists understand that it’s not just about investments — it’s about everything else as well.”

Before advisors can educate their clients, however, they first must educate themselves.

“Another thing these specialists are good at is having a sense of what the industry is thinking at that point in time,” Strandquist said. “They have a really good idea of what the greatest topics are, from ESG to cybersecurity to financial wellness. There are a lot of great topics out there.”

He suggested several questions that can guide the development of a value proposition statement:

  • “How are we going to educate participants?”
  • “What are some of the things we do from a plan design standpoint that we can help you with?”
  • “What are some examples of ways we’ve seen sponsors trip up, and what can we do to avoid those missteps?”
  • “What about fees and benchmarking fees?”
  • “What are the goals and objectives we are going to set, and how do we keep it simple, keep it attainable and keep ourselves accountable to make sure we know what success looks like?”

In addition to a value statement, he strongly recommend adopting an investment policy statement, or IPS. This document outlines general rules for the manager, provides the general investment goals and objectives of a client and describes the strategies that the manager should employ to meet these objectives.

“One of the biggest pitfalls of those who don’t specialize in plans is that they don’t have an IPS,” Strandquist said. “It’s not required, but if you talk to an ERISA attorney, it’s going to be one of the first things they suggest you do. Frankly, if the Department of Labor ever came in and audited that plan, it’s probably the first thing they would ask for. We would encourage you to at least have some type of IPS built and adhere to it. The worst thing you can do is have one built and not adhere to it.”

He shared another trait he observes in top performers.

“They keep things simple,” he said. “This can be a daunting subject matter for some who don’t specialize in the business, but you would be surprised at how simple they keep it. They don’t want this to be a huge production. They really take the lead and use it as an opportunity to show their leadership, show their value and how they are making the sponsor’s life easier and giving them direction in terms of what are the best practices they can do as a plan sponsor.”

A confident, proactive approach sets the tone throughout the process.

“The best advisors set an agenda ahead of meetings, email it to the committee about a week in advance, get buy-in and feedback from the committee and customize it from there,” Strandquist said. “They also take minutes at the meeting. Part of the role of an advisor is to lead the charge in terms of education and use it as an agenda for the next committee meeting.”

Perhaps most importantly, every decision must be made with the participant in mind.

“How do we improve participant outcomes and how do we do everything in the best interest of that participant?” Strandquist asked. “This is why the plan exists. All of the trends, whether it’s auto-enroll, auto-escalate or target-date funds, are about making it easier and improving the ultimate outcome for the participant.  We can alleviate the confusion that comes along with investing these days. The north star in any retirement program ultimately is to help the participant have success.”