PLANSPONSOR - May/June 2024 - 20

COVER STORY
CAN ADVISERS BE TOO PROACTIVE?
W
hile sources agree that proactivity is
desirable for advisers, they caution
sponsors to recognize its possible downside.
Jim Scheinberg of North Pier Search
Consulting agrees there is a substantial
benefit in having a proactive adviser, provided
that proactivity fully aligns with the
plan and with participants' interests. When
the adviser's proactivity helps the plan
operate as close to optimally as possible,
" there's nothing but benefit when you get
a proactive relationship, " he says.
Proactivity can come in two different
categories, Scheinberg says. The first is
the introduction, and even the promotion,
of ancillary or leading-edge services and
plan features. " When you're talking about
proactivity in terms of delivering ancillary
services-things such as managed
accounts and financial wellness, anything
really that increases the compensation of
the adviser or advisory firm-then proactivity
needs to be taken with an ounce of
skepticism, " Scheinberg says. He maintains
it is vital for sponsors to identify when
an adviser, especially one serving as a fiduciary
for most of the relationship,
introduces
such additional services.
In some instances, the ancillary
services give participants affordable access
to services they would otherwise not get,
but that is not always the case, he says.
" The other side of the coin is there are very
large organizations out there with very
well-known names in the adviser industry
that look at this as a massive revenue grab.
And it is not focused on what's best for the
plan sponsor or participants-it's about
how much more money they can make. "
Jay Gepfert of Culpepper RFP
agrees that proactive advice to add wealth
management services to the menu of plan
Recognizing Proactivity
Most advisers would likely give themselves good grades if asked
about their proactivity. According to Eric Dyson, executive director
of 90 North Consulting LLC in Dallas, sponsors need more
tangible evidence. Dyson says advisers should provide specific
illustrations of how their proactive advice " moved the needle on
the retirement plan " and how they measure their results.
For example, advisers can demonstrate proactivity with a
plan's investment selections, notes Jim Scheinberg, managing
partner in North Pier Search Consulting in Marina Del Rey,
California. Investment oversight for 401(k) plans is often considered
a commoditized service, says Scheinberg, and some advisers
put little effort into the process.
" Some organizations simply are printing a [portfolio analysis
and performance] report that may or may not have some meaningful
depth behind it, " he explains. " They deliver the report,
and that's the end of it. If a fund gets a passing score, that's good
enough for them and they move on. "
But other advisers take a different approach. An adviser whose
firm purchases securities for its portfolios expends more effort on
buy-side analysis and can spot potential problems faster than can
less active peers. " They're far more concerned with making good
selections for the long run and not necessarily just good-looking
selections from the client's perspective, " Scheinberg says. " So,
proactivity works its way into what is often thought of these days
as a commoditized part of the adviser relationship, which is investment
selection. "
20 PLANSPONSOR.COM May - June 2024
advisory services might not be in the plan's
best interest. He points out that market
consolidation is compressing advisory
service
fees,
so
wealth management
convergence-offering
services to plan
participants-can help advisers offset this
compression and grow their revenues.
Advisers can " move into wealth
fees
management where
average
are
almost four and five times as profitable
on a per-dollar basis, or financial wellness
education where they can charge
significantly more than for just general
participant education, " he says. " So, a
part of [convergence] is demand. But a
part of it is a business plan to grow revenues
by the advisers. I understand I'm
being a bit of a cynic on this, but I think
it becomes more of a driver of the business
than it is necessarily a benefit for
the average participant. " -EM
Advisers' responses to a plan's request for proposals are a
typical evaluation starting point. However, standardized response
forms can lack the questions needed to identify proactivity, Bray
cautions. She supplements standardized forms with questions
seeking specific examples of the adviser's proactive actions and
the results of those actions.
Gepfert also asks advisers to move beyond " yes " or " no " RFP
responses and verify their claims. " It could be as simple as what
you do in terms of evaluating target-date funds on an ongoing
basis or what you've done in the past for clients in plan design and
for compliance issues, " he says.
Dyson advocates requesting case studies to support advisers'
proactivity claims. A case study might, for instance, describe the
adviser's work with a manufacturing firm operating in multiple
locations with diverse demographics. The study would detail the
number of financial education sessions provided to participants,
including bilingual sessions, and the results the effort generated.
Case studies also give Dyson insight into how an adviser
works proactively. Different plans need different solutions, and
Adviser A's expertise and solution may differ from Adviser B's,
Dyson notes. " That's the challenge, to find the best fit. "
Proactivity With DB Plans
Defined benefit sponsors also consider adviser proactivity, but
their situation differs from that of defined contribution sponsors.
According to Brian Pieper, a principal in employer benefits advisory
Curcio Webb in Oakland, California, consulting actuaries
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