Seeing Is Believing: Marketing to Plan Sponsors

One of the most common questions I get is from advisor is how to convince plan sponsors that they need to review their plan for potential compliance issues.  When I ask plan sponsors what it takes to get their attention, the usual response I receive is credibility and both an offer and an  ability to present evidence to support the need to make changes in the plan.

Turns out that a lot of plan sponsors are just like most of us.  Don’t waste my time with a bunch of abstract gobbledygook or self-serving opinions. Show me the money!

Most advisors approach plan sponsors with various abstract arguments as to why changes need to be made in their plans. The problem with this type of approach is that studies have shown that people are more visually oriented.  That is why most attorneys try to always reinforce testimony at trial with supporting visual aids. Advisors would be wise to adopt a similar approach in dealing with plan sponsors.

When I meet with a plan sponsor, I always provide the plan sponsor with both the Active Management Value Ratio and the InvestSense Ratio calculations for the plan’s investment options.  These are two proprietary formulas that InvestSense has developed.  The formulas are relatively simple, yet very persuasive and have proven to effective in resolving legal actions.  While advisors cannot duplicate the results from our proprietary formulas, advisors need to realize the importance of visual evidence in trying to work with plan sponsors.

I can tell the plan sponsor that there are serious compliance and liability concerns that need to be addressed. However, by providing a plan sponsor with a tangible document with meaningful numbers, it gives the plan sponsor not only something that they can wrap their arms around, but also something that they can use to document their due diligence and support their decision in case questions of liability arise.

Advisors trying to work with plan sponsors also need to understand the importance of cognitive biases.  Remember, plan sponsors believe that they are doing things right. Therefore, they can be expected to view most opinions to the contrary with skepticism. Again, another reason for supporting documentation.

Appearance of authority and “anchoring” are two of the most common cognitive biases that advisors face in dealing with any potential customer. Appearance of authority refers to a situation where a customer believes that someone is knowledgeable on a subject simply because of their title or employer. This appearance of authority usually results in a level of trust that can be hard to reverse, even in the face of overwhelming evidence, as most people tend to want to trust other people. This desire to trust others often leads to anchoring, or the tendency to resist change and hold on to personal perceptions and beliefs, no matter how strong the evidence is to the contrary.

Once again, mere oral presentations are unlikely to overcome a plan sponsor’s cognitive biases.  One of the major problems in overcoming cognitive biases is that most people are unaware that they may have such biases.  In my opinion, the best way to handle such biases is simply to use the “touchy feely’ approach, providing the plan sponsor with a tangible document that they can privately review and then use to question the plan’s current consultant.

The bottom line is that mere rhetoric is unlikely to be enough to convince a plan sponsor to listen to your presentation or make any changes.  Advisors attempting to work with plan sponsors need to develop legitimate presentations that emphasize visual persuasion in the form of supporting documentation and other forms of visual material that plan sponsors can easily understand and use.

About jwatkins

I am a securities and ERISA attorney. I am a CFP Board Emeritus™ and an Accredited Wealth Management Advisor™. I am a 1977 graduate of Georgia State University and a 1981 graduate of the University of Notre Dame Law School. I am the author of "CommonSense InvestSense: The Power of the Informed Investor" and " The 401(k)/403(b) Investment Manual: What Plan Sponsors and Plan Participants REALLY Need To Know. " As a former compliance director, I have extensive experience in evaluating the legal prudence of various types of investments, including mutual funds and annuities. My goal is to combine my legal and compliance experience in order to help educate investors and investment fiduciaries on sound, proven investment strategies that will help them protect their financial security and/or avoid unnecessary fiduciary liability exposure.
This entry was posted in 401k, 401k compliance, 401k investments, 404c, 404c compliance, compliance, fiduciary compliance, fiduciary law, investments and tagged , , , , , , , , . Bookmark the permalink.

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