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Don’t Overlook Retirement Plans for Raising Assets

Employer sponsored defined contribution retirement programs, including 401(k) plans, often get a bad rap as business building tools for financial advisors. The concerns, at least at first blush, are not without merit, but over the long term, pitching defined contribution plans can be an attractive way to raise assets and strengthen existing client relationships.

Defined contribution plans involve employees and employers making defined contributions to retirement programs as opposed to defined benefit plans, which involve having employers specify the size of a pension that workers will receive upon retirement.

While define benefit plans are still common, especially among smaller employers, they are gradually being replaced by defined contribution plans. Unfortunately, advisors often cite a variety of reasons for their reluctance to sell retirement plan products.

In many cases, employers use benefit committee and external consultants to select retirement plan vendors. The committees and consultants can take months to conduct due diligence on potential plan providers, which can make the sales process a long arduous undertaking.

Getting through the vendor selection and winning a new account, furthermore, is only the beginning of the process as plan data and assets must be transferred to the firms that will service the plans. The process can be tricky, especially when considering that defined contribution plans have plenty of moving parts—there are plan recordkeepers, administrators, trustees and investment providers that must communicate among themselves.

Correcting any mistakes that arise during the plan conversion process, of course, can be frustrating. While establishing new retirement plan clients can be difficult, many advisors argue that the long-term payoff of offering the services is appealing, especially when considering that defined contribution plans held $5.1 trillion in assets at the end of 2012, according to the Investment Company Institute.

Yet, that is only part of the appeal. Indeed, many advisors say offering retirement plan products allows them to leverage existing relationships or establish new relationships. For example, advisors’ clients may have corporate executives that serve on their employers’ retirement plan committees. Having already won the trust of such executives, the relationships can give advisors an inside track when selling retirement services.

By offering retirement services, furthermore, advisors can reduce the likelihood of other retirement plan providers poaching clients who are corporate executives that serve on benefit committees. The cross sale opportunity, of course, works both ways. In other words, advisors who establish themselves as trusted group retirement plan providers can pitch their advisory services to individual executives who sit on employee benefit committees.

In the process of serving retirement plans, advisors get valuable face time with company executives and by earning their trust, position themselves in an ideal position for winning new accounts with high net worth individuals. Cross selling, while appealing, is only one benefit: most advisors say the greatest appeal of retirement plans is capturing rollover assets.

Indeed, most advisors that sell defined contribution services conduct employee seminars to encourage workers to enroll in their plans and to educate workers on planning for retirement. Conducting such seminars can do a lot more than simply encourage employees to save for their golden years.

In fact, advisors typically say the seminars position them as trusted advisors among workers. By doing so, advisors are likely to capture IRA rollovers when employees change jobs or retire. The rollover market, furthermore, is substantial. Indeed, research firm Cogent estimates that rollovers this year will total $280 billion this year. It maintains that one in 10 investors having more than $100,000 in investable assets will probably complete and IRA rollover this year.

Getting starting in the defined contribution market can be tricky, but most advisors’ custodians or home offices offer services to help advisors get started. Many retirement vendors, furthermore, have sales specialist who can work alongside advisors when establishing new accounts.

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