Recommending qualified plans to business-owning clients is, in most independent advisors' minds, one of their least favorite tasks. Advisors tend to steer clear of qualified plans because they think, as Michael Butler, senior VP of retirement services at NFS Distributors, Inc., puts it: "The plans are complicated, and they don't pay well enough." The former complaint is often true enough, but it can be remedied by partnering with a good 401(k) plan provider (see our list of such providers on the next page), and staying abreast of regulations and changes in the marketplace. As for the latter worry, Butler believes it's just not true.
Most advisors fail to consider the "recurring deposit business" they can garner from qualified plans, he says. For instance, most clients participate in 401(k) plans through automatic payroll deductions, which remain steadfast even in down markets. "People don't run to the HR office and stop" their 401(k) contributions when the economy and markets turn sour, Butler says. "As long as advisors hold on to the plan and service it long-term," they're guaranteed a "recurring commission stream." And qualified plans are a perfect entr?e into the booming IRA rollover market. Advisors are "in a great position to influence and attract IRA rollover dollars from the people they earned money from on the 401(k) side," he says.
Brian Graff, executive director of ASPA, a national organization of retirement plan professionals based in Arlington, Virginia, agrees with advisors that it's easy to get bogged down in 401(k) plans' administrative complexities. But these plans do have an upside: "401(k) assets are held longer, and there's less churning [of accounts]" than in other plans. And if advisors are worried about losing control of assets in a 401(k) plan, Graff says the best thing to do is hire an independent firm to take care of the plan administration so the advisor can focus on managing the plan's investments.
Post Enron, fiduciary liability has become of paramount concern to advisors and plan administrators. Graff says 401(k) plans could face additional administrative burdens soon, as the House was scheduled to reintroduce last month legislation that would require, among other things, more frequent delivery of benefit statements, increased information on investing, and additional investment education data.
