PLANADVISER - November/December 2018 - 20

In its work with plan advisers, investment manager
Nuveen has seen that such client segmentation turns out to
be one of the key components of an efficient and profitable
practice, says Christine Stokes, managing director and head
of defined contribution investment only (DCIO) practice
management for the firm, in New York. For an adviser who
has not previously segmented his client base, she suggests
a four-step process.
First, she says, to begin developing a profitability profile,
think about the demographics of current plan clients: What
service models are provided to each of the plans, and what
are each plan's cost and revenue characteristics?
Next, think about the compensation structure you want
to receive, as well as the characteristics of your ideal plan
client: type of plan; employer's industry and geographic
location; employer's financial situation; and the plan's
participant demographic profile, including participation
rate and average deferral rate.
From there, Stokes recommends grouping the clients
into categories: high time and high revenue; high time and
low revenue; low time and high revenue; and low time and
low revenue.
Finally, start thinking about service model tweaks, especially
for those in the " high time and low revenue " category.
She suggests considering adjustments in the deliverables
these clients get and possibly who within the advisory
practice will handle those deliverables. These situations
often involve what she calls " service creep, " meaning the
service level has gone up gradually since the initial clientservice
agreement. Also, the adviser may not have delegated
enough of the client work to his team or not leveraged
service providers enough, she adds.
Have a well-defined service agreement. When creating
a service agreement with new plan clients, avoid using an
open-ended contract, recommends Randy Fuss, practice
management coach at CUNA Mutual Retirement Solutions
in Madison, Wisconsin. " I suggest a two-year service
agreement, " he says. " Until you get in there and roll up your
sleeves, you don't know how much time it will take to work
with that client. "
Often these new client relationships involve a recordkeeping
conversion. " Having a two-year contract allows you
to reassess early on, 'OK, I spent a lot of time on this client:
How much of that was related to the conversion, and how
much was ongoing work?' " he says.
And remember
agreements spell out that model's deliverables and establish
expectations for time-consuming work such as committee
fiduciary training and on-site participant education.
" Our profitability in that segment has doubled over the
past six years, " Peluse says. " We've learned to deliver those
services in a repeatable manner. If you can develop a scalable
model for each client segment, you can build a profitable
business, over time. "
Clearly explain costs for extra services upfront. Wintrust
stresses transparency and flexibility with its fee approach,
so it makes clear what the cost will be if a sponsor client
wants services above and beyond the service agreement. " If
there are extra services our clients want us to provide, they
understand the costs associated with that, " Peluse says. " We
are upfront with all clients about the model we need, to be
profitable. "
In its service agreement, which typically involves an
asset-based fee, Wintrust prices for a specified number
of on-site education days. " Anything above that has an
added billable amount, and that is spelled out to clients
in the service agreement, " Peluse says. Other Wintrust
service areas that can carry extra fees include supporting
a sponsor's recordkeeper search, providing advice on health
savings account (HSA) investments, or conducting extra
participant education programs on such topics as studentdebt
repayment.
Fiduciary Investment Advisors LLC (FIA) charges most
plan clients a flat fee and also includes flexibility for additional
services that cost extra. " Our standard service level is
spelled out in advance to clients, " says Mark Wetzel, president
of the Windsor, Connecticut, advisory firm. " In the
service agreement, we also model out, 'If you want additional
items, here is the cost.' We want to make sure we're
protecting our brand, but also being consistent and fair in
our services and pricing. "
Use technology and outsourcing to improve efficiency.
Sponsors' growing fee awareness has increased advisers'
need to operate their practice more efficiently, sources say.
" The fee pressure is not so much about fees going down
as it is about services going up, " Wetzel says. " Clients are
expecting more and more services from us, to help them
with their fiduciary responsibilities. "
FIA uses technology in multiple ways to serve clients
that a detailed service agreement,
reflecting an advisory practice's client-segmentation
approach, can make a big difference in profitability. Adviser
Dan Peluse, director of retirement plan services at Wintrust
Investments in Chicago, used to pass up working with
small-plan clients because of profitability concerns. " Now,
the startup-to-$20-million-plan segment is the most profitable
part of our practice, " he says.
Wintrust developed an efficient model for working with
small plans that resembles an open MEP [multiple employer
plan]. It includes a 3(38) fiduciary investment management
service-utilizing a single recordkeeper for all of these
plans-and clearly defined service parameters. Its service
more efficiently. " Doing 'virtual' committee meetings is a
big one, " Wetzel says, because these involve less time and
expense than an adviser traveling. " And our CRM [customer
relationship management] system creates all kinds of efficiencies. "
For example, FIA has a 500-plus-plan database
that it uses to access data for its annual plan fee-benchmarking
reports. " Now we can pull all the benchmarking
data we need out of the system, " he says. " In the old days, it
used to be very manual. "
Some plan advisers may take a cue from other advisers
who have begun using artificial intelligence (AI) technology
to help serve clients more efficiently. Nationwide Advisory
Solutions' " Advisor Authority 2018 " report finds that early
adopters have been using AI to grow their practice.
20 | planadviser.com November-December 2018
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PLANADVISER - November/December 2018

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