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How to Crack the Group Plan Market

Win / Loss analysis article

The 401(k) space offers significant opportunity for financial advisors looking to expand their business and diversify their client base.

Given the relationship-focused nature of the retirement industry, financial advisors who pursue 401(k) plans have increased opportunities to develop relationships with business owners, highly compensated executives and numerous other employees. With so many changes taking place in the industry (and increasing scrutiny that business owners are facing to fulfill their fiduciary responsibilities), there is growing demand for financial professionals to provide guidance to plan sponsors, particularly in the sub-$10 million space, where administering a retirement plan is only a small part of a plan sponsor’s job. In addition to the retirement plan itself, lucrative openings exist for obtaining ancillary business that can lead to other investment planning prospects. Rollovers from new employees with prior retirement plans can be a potential revenue source for an advisor, as well as future IRA rollover dollars as participants head toward retirement.

Financial advisor fees from small market plans typically average 25 basis points on total plan assets. Therefore, a $5 million plan can generate an initial $12,500 per year in revenue to an advisor’s business. With contributions flowing into these plans, plus market appreciation, this growing and typically sticky revenue source can be achieved with limited expenditure on the financial advisor’s part. In order to maintain successful relationships with the business owner / employer, financial advisors often conduct initial enrollment and occasional educational meetings with employees, which helps advisors develop deeper ties within a company.

Although the sales cycle for selling a 401(k) plan can be quite long, averaging anywhere from three to 12 months, there are many ways for advisors to improve their odds of selling 401(k) plans. Here are three avenues for advisors to improve their close rate:

Specialize: The majority of advisors who have sold into the retirement space have sold only one or two plans, limiting their level of expertise in this industry.  Therefore, one clear way for an advisor to stand out is to specialize in this arena. With demonstrated expertise, an advisor will be able to customize a plan to fit the unique needs of the client, setting him or herself apart from other financial professionals. The industry has developed many sources to help advisors become educated on selling and servicing retirement plans, making it easy for advisors to specialize in this field.

Sell to the business owner or CEO: It will never be easy to sell a 401(k) plan to an office manager. Focus on the decision maker and sell the value of the plan. Since most employers view retirement plans as an added cost, it is important to focus on the attractive aspects of the plan, including financial benefits and increased employee retention.

Be persistent: Like any other market, the 401(k) arena is all about persistence. You have to cold call, visit, and email, and repeat. Typically you are selling to small business owners and they are some of the hardest people to reach. You simply have to hunt them down.

For advisors looking to branch out into new and rewarding areas, the retirement plan market can be a potentially fulfilling arena, ripe with growth and educational opportunities.