Top Advisors Show the Wisdom—and Profits—of Partnerships


  • The complexity of today's DC world makes dabbling by non-experts risky for non-specialists and their clients
  • Building partnerships between wealth managers and retirement plan specialists can lead to profits and secure client relationships.

Just a few years ago, it may have been acceptable for a wealth manager to meet with their client who also happens to be a plan sponsor, pick a few funds for their 401(k) menu and then quickly adjourn for lunch.

Now, given the complexity of the 401(k) landscape, that's not only not acceptable, from a fiduciary perspective it's potentially dangerous. DC sponsors don't just need some advice on their investment strategy. They need specialists who can not only regularly review their plans, offer insights on how to make them more efficient and effective, and protect them in an increasingly litigious environment.

The great news is that partnerships can build business and profitability for both the specialist and the dabbler in today's DC marketplace. More and more financial advisors and DC specialists are recognizing the mutual benefits of working together.

Forging partnerships with wealth managers not only makes good business sense for advisors. In a competitive marketplace, it can help build a steady pipeline of referrals and establish your credibility and reputation as a DC specialist.

"If you're going to dabble in the DC space, or even in the not-for-profit space, sponsors are going to see through that pretty quickly," says David Hinderstein, president of the Strategic Retirement Group, who partners with advisors to provide expertise in multiple sectors of the not-for-profit space, including universities, healthcare, and independent schools. "Partnering is what it's all about today. Having that kind of expertise on your team will help you win the client engagement, and more importantly provide your client with the solutions they need to succeed."

"I've partnered with some very successful advisors all over the country. They are very knowledgeable, yet they don't understand the specific challenges faced by sponsors in the not-for-profit retirement plan space," he continues. "And so, they've come to realize that it's better to establish a partnership and get 50% of the business than 100% of nothing."

DC Edge spoke with Hinderstein, Jason Chepenik, managing partner, Chepenik Financial, along with Matt Lasko, vice president, UBS Financial Advisors, and Bill Peragine, Senior Vice President, the Retirement Group, four top retirement specialists, about establishing successful working partnerships with advisors and wealth managers.

It Starts in Your Own Backyard

DC advisors who want to pursue partnerships can start by building referrals with advisors at their own firms. Peragine has a wealth manager on his five-person team that usually brings in 401(k) business referrals from business owners and CFOs.

Hinderstein, an independent advisor and Registered Investment Advisor with LPL Financial, gets referrals from LPL advisors across the nation on a regular basis. In one instance, an advisor introduced him to an association of nearly 40 colleges for an entire state. Each institution uses the same provider but makes separate buying decisions, so conceivably, each of the individual institutions could become separate clients.

"A big source of our referrals in the large plan market, specifically the not-for-profit sector, comes from our existing clients, as well as ERISA attorneys. Recently, a NYC-based ERISA attorney referred 20 of her large not-for-profit clients to the SRG Team," he says.

Lasko adds that the best opportunities come from advisors who have the business, but realize they don't have the experience or skills to handle it themselves.

Recently, he helped an advisor in Austin review a $5 million plus plan, and it opened the door to a stream of new business. "You have one good client experience and it unlocks the door to more referrals," he says. "We have client teams in New York City asking us, 'I have a client in Dallas, can you help us?' We're always happy to accommodate those types of referrals."

The Rules of the Game

When Lasko is asked to consult on a plan, he introduces himself to clients as the 401(k) specialist, and the referring advisor is presented to sponsors as the wealth specialist. But 100% of the business goes back to the referring advisor. "We don't take any revenue off of that," he explains.

Although referring advisors may keep 100% of the business, the degree to which they are involved in the actual client engagement varies from little to nothing at all.

Lasko explains: "In many cases, we take the lead on the plan for the referring advisor—which includes all discussions and payment. One advisor sent us a 401(k) to review the other day and I provided him with a few talking points to use with the plan sponsor. The plan sponsor was satisfied, and now we have a 95% chance of being named the consultant on that deal. We'll add that revenue, pick up the assets. The advisor is happy. And UBS is happy because they are now motivated to bring in new assets."

In fact, UBS is very focused on leveraging these relationships across the entire firm by establishing cross-selling relationships among the investment bank, global asset management, and the wealth management group.

At LPL, each partnership is structured on a case-by-case basis to match the skills of the parties, the goals of the sponsor and the extent to which the advisor wants to be involved, says Hinderstein.

In some instances, for example, advisors want to handle participant interaction, and have the wealth manager take on the rest, he says. Or, advisors may want to have a more proactive role in the investment committee meetings.

"Recently, an advisor called me 30 minutes before going to a finals presentation with a large nationally-recognized research university," he explains. "In that limited time, I was able to provide him with relevant and impactful talking points, participate in the presentation by teleconference and help the advisor close that piece of business.

"Each advisor that brings in a client wants something different from the partnership," adds Hinderstein. "You have to adapt to that and be flexible in structuring the partnership. Some say, "I'll take 10% on an ongoing basis, but I want to handle all participant interaction and education. It's usually based on what each party brings to the table."

Ultimately, the success of partnerships is determined by the experience delivered to the client, not revenue or reciprocity issues.

"You have to be willing to give up something," says Chepenik. "It's not about one plus one equals three from a revenue standpoint, or, I gave him three deals, he better give me three deals in return," he says. "Rather you should be asking, "How are my clients' best served? How can I deliver the best experience to improve outcomes?' If you're purely focused on revenue, then partnerships are probably not for you."

Managing the Relationship

When it comes to building referrals, most DC advisors still live by the 80/20 rule: Obtaining 80% of your business from 20% of your clients.

However, it's still important to craft a well-defined, documented process for clarifying the parties' roles in servicing and managing the 401(k) clients.

In most cases, partnerships are structured according to what both partners want and expect from the collaboration and the type of expertise and skills they bring to it.

"It all comes down to being comfortable in your skin, and knowing what you're good at and what you're great at," says Chepenik. "Also, it's about your people. I have four people on my retirement team. If my partner has four people on his or her wealth management team, our goal is to figure out how we can work together to deliver the best experience to the client."

Once the specialists conduct a total review of the plan, there is ample opportunity for the specialists to help the referring advisor make an impact in all kinds of areas, including plan design, participant enrollment, and deferrals.

"There are companies, especially those in the not-for-profit sector, where the driving factors are mission-based," says Hinderstein. "They know they want to change the status quo and have a retirement plan for their employees consistent with their overriding institutional service mission. They want to make a difference, but they're just not sure what changes need to be made or how to go about it. That's where we come in."

"We can help develop a retirement plan strategy with guiding principles consistent with their mission, educate the committees and participants, and execute on that strategy," he adds. " We love it when clients hand us a clean canvas, allow us to paint and say, 'Bring your own colors.' That gives us the opportunity to work with the advisor to take a fresh approach with the client, strategize and make a very meaningful impact on the plan."

In one example, a fresh approach allowed Hinderstein to improve the new flow of a plan from $50 million to $84 million over a six-month period without one dollar of increase in employer contribution, he says. "They had a great plan design with 5% mandatory contribution and 5% employee contribution, and since the plan had a mandatory contribution, the 402(g) limits did not come into play," he explains. "The challenge was that the participants did not understand how to use the existing plan design to maximize their benefits. Our firm developed a clear and consistent communication plan that helped increase plan participation and savings rates."

Lasko's team also recently made a significant impact on a plan for a hospital in New Mexico.

"We spent four days on site and did 150 one-on-one meetings with the staff. We took the deferral percentage from 3 to 7% and reallocated 90% of the plan participants to target date funds. About 70% of participants logged into the plan for the first time in 10 years. The investment committee thought they were doing everything right, but there was a disconnect with the employees. So, when we can make these connections and help people save more, that's where we believe we can make a difference."

Correction: A prior version of this story gave the wrong title for Bill Peragine. His title while at Morgan Stanley Wealth Management was Senior Vice President, the Retirement Group.

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