Financial advisors who support retirement plans need to create a unique value proposition
by Tom FosterMr. Foster is Assistant Vice President, Strategy and Relationships, for MassMutual Retirement Services, a division of Massachusetts Mutual Life Insurance Co. Visit massmutual.com.
Apple® … McDonald’s® … Toyota® … GE®. The world’s most valuable brands as identified by Forbes magazine hold the promise or expectation of a unique and consistent experience. It’s why consumers are loyal to brands they trust.
Unfortunately, the same cannot be said for financial advisors, especially when it comes to the retirement plans marketplace. It’s a sea of sameness in the advisor community, with little differentiation in value propositions. It seems that most advisors talk about the same themes: fees, funds and fiduciaries.
To compete at a higher level and win more than their fair share of the local market, advisors need to determine their point of differentiation. What is it that distinguishes an advisor from the other fish in the sea? What defines an advisor to prospective retirement plan sponsors as a Starfish instead of just another Dogfish?
MassMutual Retirement Services recently conducted research that found plan sponsors were more likely to work with a financial advisor who offers a specific value proposition of capabilities and service. Yet, few advisors clearly articulate a value proposition, never mind one that is differentiated, the research discovered.
A Winning Combination
The MassMutual Winning Combination Study polled 565 employers that sponsor retirement plans, including 449 that worked with an advisor and 116 that did not, with retirement plan recordkeeping assets from less than $1 million to as much as $75 million. In addition, the research included two focus groups with plan advisors. The research was conducted by Greenwald & Associates in the summer and fall of 2015.
As part of the research, employers or “plan sponsors” were presented with a handful of different retirement plan advisor “personas,” each with a distinct value proposition, and asked to choose what combination of values would be most helpful in managing their retirement plan. Overall, plan sponsors say they prefer to work with a plan advisor who emphasizes employee education, good customer service, and reducing plan costs as core to his or her value proposition.
The “winning combination” of values is especially important to smaller retirement plan sponsors with less than $25 million in assets, according to the study. Sponsors with $25 million to $75 million in assets confirm those values are important but say they have broader needs, including advice on plan design, investment selection, fiduciary support and help with other benefits.
Employee education and advice is universally valued by employers, with many saying they want advisors to conduct more frequent educational sessions for employees. However, advisors counter that employers are not always willing to make time for their employees to participate in educational meetings. One way for an advisor to differentiate himself or herself is to develop a succinct, effective educational program that drives employee engagement without draining too much of employees’ on-the-job productivity.
Being responsive and accessible, listening and responding to needs, and resolving problems are the keys to good service, employers report. Plan review is especially important as a service to employers that rely on advisors. Advisors who can translate plan review as a way of measuring the retirement readiness of plan participants have a decided edge.
Partnering with a retirement plan service provider that offers a highly effective plan health program can help advisors stand out and ultimately demonstrate the real value of a retirement plan.
Service is often defined differently by prospective clients as opposed to existing clients, which means that advisors should focus on different aspects of their service when trying to attract versus retain clients. Reducing costs may help justify the price of engaging an advisor, whereas keeping the plan compliant may be more important in the long-run.
Plan sponsors say plan reviews are critically important. Those already working with an advisor want reviews more often, and those without an advisor are most open to engaging an advisor at plan review time.
Employers want advisors to help lower the overall costs of the retirement plan, including negotiating with providers, reducing investment fees, and attracting more assets to the plan to keep costs low.
The study also showed that the importance of costs was relative, however, as employers that did not currently work with an advisor emphasized costs more than employers that do work with an advisor. Service providers should provide needed information or checklists to help advisors and sponsors review and evaluate the overall costs of the plan and ways to lower costs, perhaps through plan design.
A more effective way for advisors to position themselves is by focusing less on the cost of an employer’s retirement program and instead extolling its value. One way to demonstrate value is by showing an employer the relative higher costs of older employees who remain on the job because they cannot afford to retire. Older employees typically cost employers more for healthcare, disability and Workers’ Compensation premiums and claims. Some providers are actually helping advisors differentiate themselves in the market by providing tools and analysis that clearly demonstrate the value of an effective retirement plan.
Start with ‘Why’
Aside from the foundational capabilities that advisors offer, building a value proposition should incorporate their “why.” Simon Sinek, author and motivational speaker, urges leaders and others who advise people to start with the “why” that defines their beliefs and value systems. Successful leaders start with the “why” of what they do, not the “what” or the “how.”
As an advisor, if someone understands and buys into a vision and belief system, they will work tirelessly to make it become reality. Advisors who work tirelessly to help make their clients’ dreams come true should be able to identify with this concept.
Apple Computer, the aforementioned No. 1 brand in the world, communicates its “why” as its mission to think differently. While advisors may not be able to achieve the same notoriety as Apple, creating a solid value proposition can position them as just as valuable in their clients’ eyes. ◊
This article is for informational purposes only and should not be construed as legal, investment, and/or tax advice. Please consult your own legal counsel and other experts regarding the specific application of the information set forth herein to your own plan and/or circumstances.