Benefit Your Firm and Your Clients

By Sheryl Rowling, CEO, Total Rebalance Expert on Wednesday, February 25th, 2015

How many advisors are missing out on easily added new AUM with an opportunity to provide better service to clients? Managing outside accounts, like 401(k)s, can do both!
Why is managing outside accounts good for clients? There are four reasons:

  1. Professional management - Let's face it; most clients don't pay attention to their 401(k)s. They choose a random set of investments and never look at their options again. It's true that some clients will consult with their advisor every year or two, but this is an inadequate solution at best. (Also, advisors typically don't charge for this service.)

  2. Integration with other managed accounts - When invested as a stand-alone account, 401(k)s  need to hold a fully diversified portfolio to "match" the strategy in the managed accounts. Unfortunately, many plans do not offer all of the asset classes called for in the diversified strategy designed for the managed portfolio. Rather than settle for a less-than-ideal allocation, integrating the 401(k) with the rest of the portfolio can allow the managed accounts to hold the positions not available in the company plan. 

  3. Cherry-picking - Some 401(k)s offer particular funds that would not be deemed acceptable by a client's advisor. Such funds could be too expensive, have a poor performance record, embrace a strategy that opposes the advisor's findings (such as active vs. passive), etc. If integrated with the managed accounts, the advisor can select only the "good" funds from the 401(k) and fill in the blanks within the managed portfolio. 

  4. Location Optimization: As a tax-deferred account, managing the 401(k) gives advisors the ability to apply location optimization in coordination with managed taxable, tax-deferred and non-taxable accounts. By holding tax inefficient investments in tax-deferred accounts, tax-efficient investments in taxable accounts and high return investments in non-taxable accounts (Roth IRAs), clients can postpone as well as permanently reduce their tax liabilities related to their investments.  

So, how do you easily add this AUM? From a client solicitation standpoint, you merely need to ask, citing all of the above advantages. I, personally, charge full fees on these assets and I never once got a client complaint! When clients truly understand the benefits, they don't mind paying. I recommend asking clients with large 401(k) balances first, then continuing down the list as you integrate the larger clients. 
From a technology standpoint, you will need 3 tools:

  • Account aggregation (ByAllAccounts): It will be nearly impossible to manage outside accounts by entering data into your portfolio accounting system by hand. Account aggregation services are a must if you want to be able to deliver high quality service at a profit.

  •   Tax-aware rebalancing (Total Rebalance Expert): TRX Edge, Total Rebalance Expert's new web program allowing access from any device anywhere, has full functionality for management of outside accounts. Such functionality includes the ability to select specific funds from a plan's particular offerings, the ability to exclude funds offered by the plan, and the ability to integrate location optimization. 

  •  Remote meetings (GoToMeeting): In general, to avoid custody issues, the advisor cannot have password access to clients' outside accounts. Therefore, when implementing a transaction, we simply set up a GTM session to allow the client to login in and then we input the transactions. This is actually less work than you would think; typically very few trades are required on these accounts. Finally, these sessions are an additional "touch", reinforcing the knowledge of the work you do. 

 If you are not managing outside accounts, now is the time! Go for it!

Sheryl Rowling, CPA/PFS is chief executive of Total Rebalance Expert and principal at Rowling & Associates. She is also a columnist for both Investment News and Advisors4Advisors. 

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