However, the 403(b) marketplace is very different from the 401(k) marketplace, and advisers need to know their stuff before delving into this new territory, a panel of experts speaking at the PLANADVISER National Conference in Orlando, Florida, pointed out. David Hinderstein, President, Strategic Retirement Group, an NRP member firm, who has been working in the non-profit retirement plan space for 20 years said advisers need to know the history of the marketplace: depending on the market segment, many 403(b) plans have had minimal or no sponsor involvement and a multitude of vendors or investment options.
Steven Dimitriou, Managing Partner, Mayflower Advisers, LLC, told attendees that an adviser has to “absolutely” show expertise when selling themselves to a potential 403(b) client. Advisers should show they understand the unique needs of 403(b) plans and show sympathy for the sponsors’ situation in complying with new regulations.
Jon Prescott, Chief Marketing Officer at CPI Qualified Plan Consultants, Inc., an open architecture recordkeeping provider that has opened common remitter and compliance services to K-12 and higher education plan sponsors, noted that many entities that sponsor 403(b) plans lack the staff, technology, or other resources to comply with new regulations and see them as an administrative burden, so advisers should show up willing to help.
Most sponsors fear governance, Dimitriou added. “Cost and efficiency are next year’s problem. If you walk in talking about investments, you may lose them,” he said. However, Hinderstein noted that it is easy to point out to prospective clients that an adviser can offer different investments for the plan and ways to lower fees.
To gain the expertise needed to enter the 403(b) market, the panelists suggested studying the regulations and referring to resources such as PLANSPONSOR’s(b)lines newsletter, and the 403bwise, SPARK, and 401khelpcenter Web sites. Hinderstein added that providers are also a good source of information. While all panelists said it is a good idea to partner with a provider, Hinderstein pointed out that if an adviser’s provider partner has someone in on what is going on in Washington, D.C., it is an added selling point to prospective clients.
Prescott also suggested advisers research state laws, not only for regulations on the plans and investments, but to be prepared for challenges. Some states have a law saying any vendor can enter a school and try to sell a product, increasing competition. He added that another challenge may come from unions, which may be loyal to particular vendors and are another step in the decision-making hierarchy.
An adviser's pay will depend on the client. Like with 401(k) plans, Hinderstein said that for smaller entity and K-12 plans, commissions and fees based on the amount of time spent or work done make sense, while for large clients, advisers should accept a fee for service or RIA fee model.
While advising a 403(b) plan may require a lot of work in the beginning, advisers who start now will be well-known and trusted when the market gets easier, according to Prescott. The market is moving to a model that functionally will act like a 401(k) and it shouldn't take long for advisers to get up to speed, he said.