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Focus on Client Relationships in the IRA Rollover Business

Princeton Financial Consultants - Blog

In my experience, most financial services firms are approaching the DOL fiduciary rule and the SEC’s Reg BI from the wrong angle. Yes, firms must comply with the regulations. But if your business model is to deliver personalized advice you may be missing out on opportunities to broaden and deepen your client relationships. In my view, the regulatory environment has created a significant business opportunity, especially when it comes to IRA Rollovers.

Demonstrate Your Value & Be in Compliance

In a previous blog post, IRA Rollovers: The Path Forward through Regulatory Change, we looked at the reasons why Rollovers are and will continue to be an area of regulatory focus and the importance of having the right business model in place to meet this regulatory challenge.

In this post, I’m going to dive more deeply into the specifics of an optimal Rollover business model from the perspective of clearly adding value.

While each set of regulations has its own specifics, they all share these common themes with regard to IRA Rollover recommendations:

  • First, “show your homework.” In other words, document the analysis done that led to the conclusion a Rollover was in the best interest of the client.
  • Second, justify your fees by delivering the premium services the client has agreed are of value to them.

The Side-by-Side Analysis

The “homework” should include a clear side-by-side comparison of the fees, products, services, and other features offered by a client’s retirement plan and what you would deliver if they rolled over into an IRA. This is not easy, for two reasons:
  1. Getting thorough and clear information of an individual’s retirement plan is challenging. But there are several vendors that do capture retirement plan data and develop benchmarks if needed. We can help you to assess those vendors.
  2. A side-by-side analysis that leads to a recommendation is challenging when retirement plan fees will likely be lower than what you are offering. As we know, there’s a regulatory bias toward “cheaper is always better.” However, if the side-by-side analysis includes the agreed-to level of importance for each service and feature, including fees, it could document a thorough and transparent decision-making process.
For example, if the client indicates “low fees” and “creditor protection” are very important to them, then a Rollover recommendation may not be in their best interest. However, if the client indicates access to a “broader array of investment products” (e.g., alternative investments or ESG) is very important, then a Rollover may be best. Another example may be if the client affirms “personalized advice from an investment professional” is very important. In the above examples the client is clearly indicating the services they value. And as we know value justifies fees.

Justifying Your Fees

If the side-by-side analysis leads to a Rollover recommendation, you must ensure you’re executing on those things that the client has agreed are very important with a mutually agreed-upon game plan.

For example, if access to a “broader array of investment products” was an agreed-to priority,  then I’d suggest crafting a plan to review the client’s portfolio annually and include different product ideas each and every time.

Or if “personalized advice from an investment professional” was the client’s preferred choice, then I would suggest formalizing a financial plan with updates at least annually.

And Here’s the Surprise!

Delivering a comprehensive side-by-side analysis, justifying your fees, and jointly developing a game plan to deliver what’s most important to clients will definitely help to address regulatory scrutiny. But at the same time, this process is undoubtedly also a “bonding opportunity.”

In other words — and here’s the surprise — we believe even an analysis that does not lead to a formal Rollover recommendation will often lead to other asset-gathering opportunities. That is because clients will have a growing appreciation of you and your firm’s value.

We Can Help

Even if your firm already has the policies and procedures in place so that you are in compliance with the latest regulations, you may be missing out on the opportunities to enhance and deepen your client relationships.

Princeton Financial Consultants can help you better manage client relationships so that you take advantage of the opportunities created by the current regulatory environment that will also keep your firm in compliance.

Contact us for a personalized consultation today.

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