As the former head of the Pooled Plan practice at a major record keeper, I had hundreds of conversations with advisors, consultants, TPA’s, pooled plan providers, fund partners and others looking to establish some type of a PEP, MEP, aggregated plan, GOP and other arrangements. After the initial Secure Act passed with its more welcoming legislation, interest in pooled plans of all types took off.
Particularly for PEPs, as they were new, most of the discussions focused on the construction of the PEP, who would be the service providers (record keeper, TPA, 3(16),3(38), pooled plan provider), as well as the plan features, fees and fund menus. The distribution of these pooled plan arrangements was typically addressed much later in the process. Estimates were made as to how quickly the PEPs would grow, as much of the pricing was based on the presumed assets and plans accumulated. And many of the estimates proved to be higher than the reality.
Specifically, after a few years, we found that only one in five of these new group arrangements was funded and growing. The common theme for those that were growing was an emphasis on good old-fashioned distribution (a fancy name for sales).
Those pooled arrangements that had a distribution plan, people and a process, a collaboration with the advisor, record keeper, TPA, PPP, the 3 (16) and other involved partners were growing. Those that did not were stagnant.
We learned that these PEPs had to be sold, not just bought, and that this required time and effort.
We noticed some common themes in those group arrangements that were successfully growing. Here are three trends we saw that worked:
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Distribution as a central part of the discussion. The product construction is important, but without a well-thought-out distribution strategy, there is a strong likelihood of little to no growth. Things to consider in the distribution plan, for example, are the target plan size, if any, target industry or prospect group, target geographic area, unique product features to stress (i.e., there are not as many 403 (b) PEPs and so those solutions tended to stand out) and identifying who is doing the distribution. We did find that those with a dedicated sales or wholesaler force grew faster than those that did not.
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The successful arrangements began with education. These group arrangements are confusing and complex so we had to determine the right solution for each client. Initially we focused on those who were selling the arrangements to the clients (wholesalers, advisors, others). We learned from educating them what would resonate with clients. Then we would adjust the messaging that we would use with the clients directly. We discovered that the simpler the message, the more successful.
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Piloting a solution in certain geographic areas, allowing time for reassessments and adjustments was generally more successful than a big launch. Multi-faceted distribution efforts worked best. A combination of digital marketing, affinity marketing (if there are places/times where prospects gather) webinars and face-to-face meetings (either virtual or in person) are ways to increase sales.
We are still in the early days with pooled plans. And they are not for everyone, but will continue to be a growing part of the $13+ trillion DC space. Like target date funds, pooled plans may require time to gain widespread adoption but have the potential to provide an effective solution for plans of all sizes seeking to minimize fiduciary risk, lessen administrative responsibilities, and, in certain cases, reduce associated fees. But first and foremost, make sure there is a distribution plan and process to make these pooled plans successful.
