U.S. retirement savers are often chastised for not making the most of their retirement accounts. But financial advisors can be equally guilty of ignoring or overlooking what is often a client’s largest asset: 401(k), 403(b) or 457 accounts held with a current employer.
Many advisors assume they can’t manage their clients’ current workplace retirement accounts until there’s a rollover. Conversely, many clients don’t realize that having their financial advisor manage their workplace retirement accounts is an option.
Both assumptions are wrong. By our estimates, there are more than 100,000 workplace retirement plans with over 25 million participants in the U.S. that allow for third-party management on the account while the participant is still working.
By actively addressing these accounts, advisors can enhance their service offerings and deepen client relationships while growing their own business in the process.
It starts with making the ask.
Existing clients
Where do your clients work? Existing clients are the obvious starting point for advisors who want to begin managing held-away workplace retirement accounts.
Start by identifying the companies where clients — and their spouses and significant others — are employed. The information may be buried in onboarding paperwork. If not, simply ask the client for an update.
Next comes the important step of determining whether the account is eligible for professional management. Partnering with a specialist can help advisors navigate the fine print to figure this out.
READ MORE: Understanding why clients hide held-away cash
If a client has an eligible workplace retirement account, the next part is straightforward — ask to manage the account professionally. Consider, “Would you like me to manage your 401(k) account along with your other assets?”
The question can lead into a discussion about the advantages of integrating their account into their broader financial plan. This can include the benefits of having the advisor construct risk-adjusted portfolios beyond the 401(k) plan’s core investment menu and ensuring ongoing monitoring.
Advisors can also point out that adding professional management does not require moving the account, and all statements and servicing remain unchanged.
New clients
When onboarding new clients, ask if they currently contribute to a retirement plan through their employer and if they’d like it to be professionally managed along with their other assets.
Clients may receive little guidance on investment selection or ongoing monitoring of their workplace retirement account. Integrating these accounts into the broader financial planning process allows for coordinated asset allocation and ongoing oversight, which can lead to better outcomes for the client in the long term.
The nuts and bolts
Managing workplace retirement accounts effectively, compliantly and at scale requires specialized expertise. Advisors can evaluate a number of tools and approaches for doing so.
Advisors should look for a platform that helps identify and understand eligible workplace retirement accounts and which streamlines the process of accessing, managing and billing clients with these accounts. Seek out solutions with sufficient built-in tools to build risk-aligned portfolios compatible with clients’ current and long-term goals.
Opt for platforms that work directly with custodians to officially recognize outside professional management. This will help reduce compliance risks that come from unauthorized third-party access, such as when advisors use client passwords to gain access.
It also makes sense to work with vendors that operate under regulatory standards that apply to all advisors. Advisors should confirm that the solution or platform they choose complies with the data security and privacy regulations.
When it comes to billing the account for professional management, choose a transparent, scalable model that aligns with the firm’s business goals and client expectations. Some providers have custodial agreements in place that allow for fee billing directly out of the retirement account being managed.
