5 Revealing Truths About All Those 401(k) Marketing Calls & Emails

Why am I constantly being called and emailed by 401(k) advisors? What do they really want? (It can’t possibly be just two minutes of my time.) 

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Have you ever wondered what really goes on behind the scenes in the world of investment advisors? Have you ever wanted to better understand how their business model works and why? In your role as a retirement plan sponsor (and fiduciary), are you subject to a seemingly endless barrage of marketing tactics? All of your questions can be answered with these five reasons why advisors keep calling, and we will start with the BIGGEST reason first:

1. You are a WHALE! That’s right, a whale! In the casino business, very high rollers are often referred to as “whales” because of the amount of money they gamble during their periodic visits. You may never have thought of yourself as a “whale,” but your position of responsibility for tens of millions, if not hundreds of millions, of dollars of retirement plan assets officially qualify you as a “whale”…at least in the eyes of investment advisors. Asset based or even fixed fees yield significant revenue streams for advisors year after year after year. In fact, the average plan is worth over $250,000 in fees over the typical engagement lifespan!

2. Your retirement plan is STICKY! In marketing-speak, “sticky” means that once an advisor gains a new client, that client is unlikely to move their business again in the near future. Plan sponsors know that the maintenance of a retirement plan is complex. There are a lot of moving parts, including investments, administration, compliance, communication/education, etc. No sponsor in their right mind wants to change providers any more than is absolutely necessary. And once the decision to hire is made, perspective on the quality and pricing of the competition quickly gets lost. Very few advisors or service providers will tell you that it’s time to check the market again.

3. It is cheap to call and email you. Cold-calling and emailing is likely the most inexpensive form of marketing. In fact, a recent Center For Due Diligence Survey revealed that over 50% of marketing in the industry is still in the form of cold calling… because it works. You have probably noticed that the person that is constantly calling you is not the guy whose name is on the top of their company letterhead. No, that likable person who is calling you as “a retirement plan expert” to “come do a plan review” is actually just looking to get your plan information in order to find weaknesses to point out in attempt to get you to change. If he has all that time to “stay in touch,” do you think he’s really the expert? Fairly inexpensive…so the calls will just keep on coming.

And it works. North Pier is a national leader in Advisor Search Services. In every one of our search engagements, the Sponsor who hires us always gives us a list of names of advisors “they have been taking to.” In screening these names before the RFP, most turn out to be B players at best. The best of the best don’t have time to call you.

4. Advisors experience minimal expense in delivering to institutional retirement plans. With the proliferation of “bundled” or “one stop shop” products offered by various mutual fund companies, banks and insurance companies, plan sponsors benefit from vendors that propose to “do it all.” Recordkeeping, communication & education, call center, online access, consulting, quarterly investment reviews, employee meetings, et al. And what about the advisor that helped you to select this “do it all” provider? What service do they provide? And at what expense to their firm? And it’s likely that they are offering those very similar services to most of their clients. Once you have research coverage on 70-100 funds, how much extra does a new client really cost? For established advisory practices, advisors literally make $1,000/hour + on each new client.

5. Human nature…and incentive compensation. Professionals who thrive in the world of finance typically know a fair amount about money. Investment advisors have a very good idea of what their time is worth, and typically invest their time very wisely. There is a tremendous amount of money at stake in the retirement industry, and the providers in this space know that best. These providers have created incentive support programs that will deliver a sizeable portion of this very large dollar amount to the advisor community that favors or distributes their products. General brokers were trained to go after your business by the very mutual fund companies, banks and insurance companies that they now recommend to you. The advisor behavior that you are experiencing, the constant emails and calls…this behavior in a way has been bought and paid for by the vendors. Just your average product distribution model…kind of like buying a car. UGH!

So now you know. You probably already knew. You just didn’t really want to believe all of it. Just remember, it’s okay to be a whale. Just don’t be a sticky whale that gets less than what you deserve from your advisor, your providers, and anyone else allowed the privilege of working with your plan.