The needs of clients are changing, and that means the advisor of the future needs to think differently, too. The value proposition needs to look beyond the “three Fs” of funds, fees and fiduciary, toward more customized plan designs and client engagement.
Plan advisors still need to focus on the historical table stakes:
- Funds – Provide the appropriate investment lineup for the plan and its participants
- Fees – Drive costs to be reasonable/low.
- Fiduciary – Ensure that the investments are being reviewed regularly and make changes when necessary.
Today, it’s that and more. Advisors who focus on these additional two “P”s deliver more value to the plan and participants:
- Plan Design – Plan design to maximize participant outcomes and income replacement (auto enrollment, auto escalation, stretch match).
- Participant Engagement – Participant engagement to help with holistic needs (financial planning, budgeting, emergency savings).
This may mean advisors utilize technology and/or outsource some tasks to bring a higher level of service to a larger number of participants. You could think of the advisor of the future as an orchestra conductor—understanding the goals of the plan sponsor (the composer)—and guiding all of the providers (musicians). All working in harmony to create beautiful music for the audience—in our case, a highly successful plan measured by participant outcomes.
To bring this to life, our workplace retirement specialists recently had an exchange on the “new value proposition” which included Kevin Murphy, Head of Workplace Retirement Distribution, John Kelley, National Retirement Plan Consultant, and Matthew Beaulieu, Senior Retirement Plan Strategist. Following are highlights.
John Kelley: In the past I would say the value proposition for the advisor was how to create the best investment menu for the client and how to do it the cheapest. That has transitioned to a more balanced value approach taking into account participants and participant outcomes.
Matthew Beaulieu: And if you go way back, some 12-15 years ago, advisors were all about low fees, picking better funds—and acting as a fiduciary if that was desired. I agree the value proposition has to change to more educational and more service-based. With recordkeepers starting to provide more services that were historically on the plan sponsor, from statement delivery to notice delivery to checking loans—all these things that historically were solely on the plan sponsor. Economies of scale have brought down overall costs and has allowed the advisor to focus on other client needs.
Kevin Murphy: Yes, but one of the trends we’ve seen changing is what we call the “three F advisors”—those who focus on fees, funds and fiduciaries. That’s not the value proposition of the advisor of the future.
John Kutz: It needs to go even farther. The value proposition for the advisor is now on outcomes, right? It’s plan outcomes and plan participant outcomes relative to income replacement. It’s no longer just around the triple Fs, because those aspects can be commoditized and outsourced. The advisor is then left to be the quarterback around plan design and ensuring that participants achieve the end goal—income replacement.
John Kelley: I would say the advisor is like a conductor, they understand the goals of the plan sponsor (composer) and orchestrate all of the providers to bring the goal to life. We see advisors outsourcing services like 3(38), fund lineups, and 3(16)—the day-to-day operations of a retirement plan including paperwork and processing changes—to be able to more easily balance all that goes into managing a plan. Advisors tout participant engagement and usage of the plan-to-plan sponsors.
Kevin Murphy: An investment professional who manages a 401(k) account—known as 3(38) fiduciary—can outsource many duties (such as choosing a fund lineup for the plan) to a third party for around five basis points. That’s a pretty compelling value proposition for both the advisor and plan sponsor because the advisor can not only be a good fiduciary, negotiate good fees, and make sure the participants have access to good funds, but can also meet client needs for financial planning and other goals in a more holistic way. I think that’s really what plan sponsors want, and what clients want. Findings in our Voice of the American Worker Survey[1] confirm this. According to our survey, employees are seeking opportunities to improve their well-being and are interested in benefits like access to a financial professional, financial planning tools and financial education.
Matthew Beaulieu: Kevin mentioned financial education, and I think that is a really important service. One of the first posts I did in my early days on social media was an “Investing 101” type of post that explained what a mutual fund is. To my surprise, it got thousands of views and likes. I think sometimes we as professionals think everyone understands the terminology, and advisors expect employees working for a small employer to understand. But the reality is, most people don’t understand budgeting, they don’t understand what debt does to them long-term. They don’t understand how to save and invest, let alone all the options available to them. So, I think the wealth management aspect also crosses into the education and the wellness side—it’s all part of financial well-being.
Kevin Murphy: It’s a good time for the advisor to really embrace a new value proposition, and those that have been focusing on financial wellness and delivering holistic solutions through the workplace are uncovering a need and desire to provide broader wealth management capabilities not only to the plan participants, back to the “c-suite,”—the business owners. The business owner might have liquidity events or will have liquidity events and needs financial planning beyond those “three Fs.” It’s the notion of an advisor as a business consultant to the plans they serve—opening the doors and opening their eyes that they can develop a wealth capability, they can partner to develop a wealth capability, or they can acquire a wealth capability.
John Kelley: The old “build it and they will come” mentality doesn’t work, advisors more freely utilize auto enrollment and auto escalation to make sure the participants are using the plan and saving more. All of this takes more time on the advisor’s part, and the reason we think using technology to help scale personalized service is key. Technology can help advisors bring a higher level of service to a larger number of participants without any additional workload.
Matthew Beaulieu: I would make another point about the “scalability” of advisor activities in servicing their plans. The market needs to think about the simplification of plan structures and building a more scalable model, so the modern advisor can spend more time on those holistic planning and education attributes, versus just selecting and monitoring funds. They can be a true value to the plan sponsor, and just as importantly, to the participant.
John Kutz: I think that becomes the value proposition a lot of advisors who are stuck in the triple Fs have to pivot to. It’s moving toward a conversation around planned success, outcomes and a holistic benefits approach. I think the advisors who do that will ultimately have a lot more success.
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1. The Voice of the American Worker survey was conducted by The Harris Poll on behalf of Franklin Templeton from October 28 to November 15, 2021, among 1,005 employed US adults. All respondents had some form of retirement savings. This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. Findings from 2020 reference a study of a similar nature that was conducted by The Harris Poll on behalf of Franklin Templeton from October 16 to 28, 2020, among 1,007 employed US adults. Franklin Templeton is not affiliated with The Harris Poll, Harris Insights & Analytics, a Stagwell LLC Company.
