Do Good, Feel Good in the 403(b) Space


  • Compared to 401(k) plans, 403(b) plans can offer differences in regulation, structure, and vendor platforms.
  • How three DC advisors are building inroads into the 403(b) business segment.

We believe, in some ways, working in the 403(b) business is a lot like the DC version of "paying it forward."

Employers and employees appear to be in constant state of doing good for others. Motivated by the higher goals of the institution, employers are focused on developing passion and commitment among their employees. Employees, in turn, become highly motivated to return that commitment, often demonstrating a higher level of drive and engagement.

As a DC advisor in the 403(b) business, you may be called upon to educate decision-makers on fiduciary best practices.

Fortunately, the desire to do "good" and pay it forward extends to their retirement plans. "Plan sponsors in the 403(b) space are very generous in terms of matching contributions." says Ryan Gardner, principal and senior consultant at Fiduciary Investment Advisors. "Many of them have generous core contributions on top of the matching contribution program. So employees are highly incentivized to participate at high levels."

The higher the level of engagement, the less time advisors may need to devote to behavioral issues, says Kelley Snook of Snook Housey Advisors. "Everybody wants to confidently retire, whether they work for a profit or nonprofit," he explains. "But there seems to be a different attitude at nonprofits, and because of that, you focus less on behavior. Changing participant behavior is one of the most challenging issues involved in working with a plan."

This drive motivates Joe Bartnicki, partner at the Centurion Group, to ensure that every client, no matter how big or small, walks away with a positive experience.

"We are really focused on doing the right thing, because everything that you do going forward will affect your entire client base," he says. "This means making good decisions, not only for your growth of your business, but also for the good of your clients, and making sure they get the services and the quality that they're used to."

It's clear to us that this segment carries some unique and complex challenges. DC Edge asked Gardner, Snook, and Bartnicki to share their insights on how to break into the 403(b) business.

It's not your 401(k) plan anymore

The 403(b) space is not always an easy nut to crack. It requires patience, plenty of perseverance—and most importantly, a lot of homework.

There are many differences between the 403(b) business and corporate plans. At times, it can feel like 403(b) plans lag way behind their 401(k) counterparts, particularly when it comes to plan design.

Once you start looking under the hood, you can find striking differences that present themselves in many ways—in structure, types of investments, and vendor platforms. Some plans fall under ERISA guidelines, some do not.

In addition, 403(b) advisors work with a different set of players than 401(k) plans. Rather than recordkeepers or other vendors, 403(b) advisors devote more time on the approval process, working closely with the HR staff, boards of directors, and investment committees.

Each segment of the 403(b) space—schools, universities, healthcare, religious organizations, and others—has their own set of unique challenges. Getting to the head of the class in any or all of them will entail gaining depth of knowledge on the issues related to each one.

You'll also need to understand the regulation that governs these plans. Four years ago, the 403(b) space experienced sweeping fiduciary legislation. Most nonprofits, except for religious organizations, are now subject to enhanced audit, reporting, and regulatory requirements.

As a DC advisor in the 403(b) business, you can be called upon to educate many layers of decision-makers on fiduciary best practices. Advisors can offer their support to help educate and inform the plan sponsors, Boards of Directors, and finance committees on liability issues.

4 Tips to Help You Build 403(b) Business

1. Start small. Work your way in gradually by getting involved with any type of a small, charitable organization such as a philanthropy.

2. Understand the nuances of 403(b) plans. No two 403(b) plans are alike. Gain an understanding of vendor platforms to understand the rules and regulations pertaining to each of the separate vendors with which institutions are connected.

3. Prioritize education and communication. Communicate changes that can impact the employee base in a user-friendly and understandable way, and provide collateral that is easy to understand and can impact employees.

4. Become part of the community. Forge close ties within others working in the nonprofit community to build referrals.

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