The Department of Labor fiduciary rule and the record-setting stock market have combined to provide the greatest client and prospect asset-gathering opportunity of your investment management career.
Thanks to all the news surrounding the gradual enacting of the fiduciary rule, every individual investor in America now understands the importance of fiduciary investment advice.
The record-setting U.S. stock and bond market investment returns also have gained the attention of individuals who participate in their employers’ 401(k) retirement plans. Instead of being happy about the market’s gains, those working clients and prospects are now scared to death of stock market corrections. And rising interest rates have them fearful as well.
The combination of all-time stock market highs, dizzying drops and the new fiduciary climate reminds me of that old quote, “It’s not how much money you make but how much money you keep.”
The timing is perfect to begin your first fiduciary investment advice prospecting efforts with your best clients. The best pool of client assets to make your new fiduciary case is their employers’ 401(k) retirement plan accounts.
Among their other basic obligations, fiduciaries work to control the annual expenses involved in owning mutual fund investments. Fiduciaries also monitor annual investment performance of mutual fund investment options.
The fiduciary level of annual cost and investment performance analysis is your marketing entry point into your client’s workplace 401(k) retirement plan accounts.
I have provided investment advice to individual company 401(k) retirement plan participants since mid-1999. I don’t make that statement to impress. I want you to be aware of how many default company 401(k) retirement plan menus I have reviewed.
Add to that fact that I have reviewed hundreds of high-net-worth individual company 401(k) retirement plan account statements from every big-name company retirement plan provider.
The likelihood that your client owns the lowest-cost and best-performing mutual fund options on their company 401(k) retirement plan menu is zero. A high-level fiduciary investment management act now would be to compare annual costs with investment returns for every one of your client’s current company 401(k) retirement plan mutual funds.
The next step would be to calculate the amount of company 401(k) retirement plan principal that has been left on the table over the past few years by owning more expensive and worse-performing mutual funds.
Your best clients are absolutely giddy over their company 401(k) stock market and annual contribution genius over the past few years. Most investment advisors think it is very difficult to get a client’s attention after a long period of historic investment gains. With prospects, it is almost impossible.
Balderdash! Change the emphasis of your client and prospect presentations in order to fit the new fiduciary environment.
Calculate for your client, in dollars, how large their current company 401(k) retirement plan account would be today if they had owned the lower-cost and better-performing mutual fund options found on their default company retirement plan menu over the recent stock market advance.
A recent individual company 401(k) investment advice prospect I sat down with would have earned another $150,000 over the past five years if she had not selected a lagging mid-cap growth fund rather than a cheaper index mutual fund.
I have named the investment performance gap found in individual company 401(k) retirement plan accounts “the cost of the problem.” This calculation has gathered tens of millions of investment advisory dollars for my firm over the past few years.
The amount of money you find during your annual cost and investment performance analysis will very likely make your annual company 401(k) retirement plan investment advisory fees look small in comparison.
A great client and prospect asset-gathering idea would not be complete without an acknowledgement of our good friends in compliance.
Broker/dealer investment advisors will have to learn their rules and regulations regarding charging a flat fee or asset under management fee on client assets “held away” from the firm.
Investment advisor representatives of broker/dealer registered investment advisor firms have no roadblocks regarding flat fee or asset under management fees on client company 401(k) retirement plan assets.
Do you have any clients who are currently employed? Great! What is the largest stock and bond investment asset they own? It is most likely their company 401(k) retirement plan account.
Most households today contain two working adults. That means their household company 401(k) retirement plan balances can easily exceed $1 million.
Going forward, investment advisors will have to prove that an individual retirement account rollover from a company retirement plan account is in the best interest of the client. Don’t panic about these new rules like the rest of the investment advice world.
The best news about the DOL fiduciary rule is the fact that investment advisors can more easily begin to provide a fiduciary level of investment advice on client retirement plan assets long before the company retirement plan rollover.
Right now, start a marketing plan to establish yourself as a fiduciary investment advisor for your client’s existing company 401(k) retirement plan account. When the IRA rollover topic comes up, you will be covered. Unlike the rest of the local investment advisor types, you will not have to scramble for an IRA rollover account that you already manage for a fee.
Use the chaos surrounding the gradual phase-in of the fiduciary rules as the client and prospect company retirement plan asset-gathering opportunity that it really can become.
Don’t continue to provide “free advice” to existing clients on their company 401(k) retirement plan mutual funds menu. Free advice does not grow your assets under management or advisory fee revenue.
Ask your best clients for a copy of their current company 401(k) retirement plan menu of options. Next ask them for a copy of their most recent quarterly statement for that same account.
Then ask for the same information from their spouse or partner. Spend the rest of 2018 asking the same two questions of every person you come in contact with.
Asking those two questions will provide you a pipeline to more client and prospect assets to manage than you ever dreamed of. I hope that you are overwhelmed. You likely will be if you take the time to ask the two company 401(k) retirement plan questions.
The fiduciary rule may be one of the best things that ever happened in your investment advisory career. You just have to make a few presentation adjustments and include your client’s company 401(k) in the asset-gathering conversation.
Ric Lager is founder and president of Lager & Co., a registered investment advisory firm based in Golden Valley, Minn. He was the co-creator of the “No More Pies” investment series for financial advisors and author of Forget the Pie: Recipe for a Healthier 401(k). Ric may be contacted at [email protected]