What the Tea Leaves Say About the Future of TPAs ... · success • Team based – get to the point • Innovative problem solving • Prefer cross-generational initiatives • Team

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What the Tea Leaves Say About the Future of TPAs Technology Platform

David Witz, CEO/Managing Director, FRA PlanTools,

704-564-0482 or [email protected]

David J Witz, AIF, GFS, CEO/Managing Director, FRA Plan Tools

David J Witz, AIF®, GFS® is the CEO/Managing Director of

FRA PlanTools a consulting and Software as a Service

technology firm that delivers risk management solutions

including performance assessments, benchmarking,

revenue sharing data base, advisor qualification

assessments, target date analytics, online document

lockbox and fiduciary governance solutions. David has over

34 years of industry experience in multiple retirement plan

disciplines and has been published or quoted by numerous

journals and magazines and is widely recruited to speak at

national conferences. David is a 1981 graduate of Penn

State with a Bachelor of Science degree in Economics,

Insurance, and Real Estate.

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Session Description

Historically, TPAs have held a leadership position in technology deliverables

that are provided to both plan sponsors and advisors. It is highly unlikely this will

change in the future, in fact, the tea leaves indicate a growing reliance by both

plan sponsors and advisors on TPAs to deliver more technology driven solutions

that enhance efficiencies, lower costs, and improve margins. Bottom line,

technology is scalable which permits a TPA to monetize their storehouse of

information and knowledge. Early adopters of new technology and those that

embrace co-opetition profit most.

The keys to a successful roll out of new technology solutions resides in the

communication approach. For the first time in our history we have 4 generations

working at the same time and each processes information differently. Failure to

consider these differences is a quick way to lose opportunities. If you are willing

to invest in technology with the intent to capitalize on new deliverables you need

to prepare your message to resonate with each different buying type.

Technology that does not increase margins should be avoided.

Topics of Discussion

1. TPA Challenges

2. The Opportunity

3. Value

4. Why

5. Communication

6. Audience

7. Plan Design

8. Technology

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Top 12 Challenges facing a TPA

1. Fee compression

2. An epidemic of insecurity driving competition on price rather than value

3. Few firms are able to articulate value with conviction

4. Differentiation is harder to identify

5. Majority of existing technology is considered a commodity

6. There are fewer sweet spots to market disruptive innovation

7. There are fewer sweet spots to market sustaining innovation

8. Sales channels (Specialists and Blind Squirrels) are loyal to a point

9. Lack special deals for Volume

10. Lack of Capital

11. There is a cost to leverage your existing plan data

12. Economies of Scale – size matters

Industry Consolidation Activity Reviewed

1. Empower consolidates (7,072,543 participants)

a. Great West,

b. JP Morgan, and

c. Putnam

2. Voya consolidates (4,886,469 participants )

a. Citistreet, and

b. ING

3. MassMutual consolidates

a. Hartford Financial

4. OneAmerica

a. City National Bank, and

b. BMO

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Top 5 Recordkeepers a/o 2015

Rank Company Participant Count

1 Fidelity 17,609,747

2 Empower 7,072,543

3 Aon Hewitt 5,738,342

4 Voya Financial 4,886,469

5 Principal Financial 4,350,849

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Top 5 Reasons to Switch and Evaluate

Rank Reasons to Switch Criteria Evaluated

1 Quality Investments

2 Investments Plan Sponsor

3 Fees Participants

4 Plan Sponsor Quality

5 Participant Fees

When Value becomes a Commodity

You are a COMMODITY when

1. You offer the same service as your competition

2. You offer the same services with the same

a. Content

b. Quality

c. Execution

d. Technology

3. There is nothing to DIFFERENTIATE you from the competition

When there is no differentiation, clients focus on PRICE!

So, what are you doing to increase your VALUE PERCEPTION?

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A Perspective on “Value”

PRICE Is Only An ISSUE In The ABSENCE Of VALUE!

PRICE is what you PAY. VALUE is what you GET. –Warren Buffett

If you cannot build VALUE in the mind of the PROSPECT, you will COMPETE on PRICE!

PRICE is OBJECTIVE - VALUE is SUBJECTIVE

To WIN on VALUE you must think like your PROSPECT

People VALUE what they LOVE regardless of PRICE

Start With WHY?

Simon Sinek - https://www.youtube.com/watch?v=u4ZoJKF_VuA

WHY

HOW

WHAT

HOW

WHAT

WHY

• Few know WHY you do it

• WHY communicates a belief

• WHY Inspires & motivates

• Biology says people buy from the

inside out

HOW

• Some know how you do it

WHAT

• All know what you do

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Plan Consultant Magazine - Baker’s Dozen on Value

1. Laser Focus on retirement benefits or industry

2. Individualized service

3. Advanced plan design

4. Open architecture

5. Challenging plan sponsor to think differently about retirement security

6. Use of actual data to measure plan health

7. Track all activity and report on that activity to customize the experience

8. Hire 85 education specialists

9. Creating strong partnerships through service & watching out for client’s best interest

10. Let them know they are important & listen to them

11. Superior tools and technology

12. Operating without a bias

13. Charging a flat fee and fee levelization

ASPPA Plan Consultant Magazine Fall 2015 – Elevator Pitches

What is inspiring and motivating about this list?

Communicate Value Strategically

Most Common Communication Mistakes

1. Most communicate the way they want to be communicated too a. You can’t approach everyone the same way

b. What is of interest to you may not be of interest to someone else

2. You must acknowledge trends or they will pass you by

Be Tactical and Ask Questions

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Do You Know the Communication Preferences of Your Audience?

Demographics Age Year of Birth

Matures 71+ 1909-1946

Baby Boomers 52-70 1946-1964

GenX 37-51 1965-1979

Millennials (GenY) 16-36 1980-2000

iGen <15 2001

Data provided by Cam Marston of Generational Insights

Do You Know Your Audience?

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Do You Know Your Audience?

Source: Department of Labor

8 Seconds is the average attention span of Gen Zs. [National Center for Biotechnology Information, U.S. National Library of Medicine, The Associated Press ]

The Multi-Generational Workforce

Adapted, in part, from Capital H Group - Presentation by buckconsultants

Matures 1909-1945 Age 71-107

Boomers 1946-1964 Age 52-70

Gen X 1965-1979 Age 37-50

Gen Y 1980-2000 Age 16-36

• Dedicated & Self-sacrifice • Experience is best teacher

• Work is an anchor • Self-proclaimed workaholic • Competitive • Idealistic & optimistic • Value teamwork • Relationship builders • Prefer optimistic people

• Feel professionally stifled • Skeptical of authority • Lack deference to authorities • Everyone is a peer • Comfortable loners • Evaluate risks & • Manage dilemmas • Cynical • Earn their trust gain their

loyalty

• May/may not want long-term employer relationships

• Favor family time & less travel/pressure vs career ambition

• Flexible & persistent • 50% rather have no job than one

they didn’t like – PEW • 5x more likely to quit if they don’t

like their manager

• Respect authority • Obligation & Loyalty

• Personal growth • Personal involvement • Opportunity

• Fun & informality • Want success on own terms • Contractual • Want freedom to innovate

• Social • Means to an end

• Respect experience • Feeling valued & needed • Autonomy • Want engaged in the process

• Engaging with bright creative people

• Top Down • Formal & written

• Person to person • Direct & immediate • Face time is not a priority

• Voice & email • Want a lot of feedback

• Experience emphasized • Longevity/tenure • Formal training

• Hard work is the recipe for success

• Team based – get to the point • Innovative problem solving • Prefer cross-generational

initiatives

• Team based • Innovative problem solving • Prefer cross-generational

initiatives

Career Core Values & Perception of Work

Key Motivators Communication Training Development

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The Multi-Generational Workforce

Adapted, in part, from Capital H Group - Presentation by buckconsultants

Matures 1909-1945 Age 71-107

Boomers 1946-1964 Age 52-70

Gen X 1965-1979 Age 37-51

Gen Y 1980-2000 Age 16-36

• Conformity, blending, unity…team

• “we first” mentality

• Success is visible • Trophies, plaques, certificates

• Eager to experiment • Prefer team work to solve

problems • Prefer to avoid difficult

people rather than engage them constructively

• Fun, social, & informal environment

• Technology centric • Direct communications – face

to face and electronic • Mentoring • Space structured to

encourage collaboration

• Desire flexible work arrangements

• Believe work output should be evaluated not how the job is done

• Highly skilled in social networking & team activities

• Fun, social, & informal environment

• Technology centric • Direct communications – face

to face and electronic • Mentoring • Space structured to

encourage collaboration • Traditional Compensation • Traditional Compensation • Competitive comp balanced

with non-traditional rewards • Competitive comp balanced

with non-traditional rewards

Work environment

Compensation

What Matters to Matures & Boomers


1. History of organization 2. Name recognition 3. Tenure in marketplace 4. Historical & Perceived Quality

What is Your Story? Your Story Validates Why You Deserve the Business!

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Key Points about Boomers


1. Work Ethic 2. Visible Success 3. Consensus Building 4. Team Focus

How to Connect with Boomers


1. Communicate how you become a part of their team 2. Clearly define how you save them time 3. Communicate how you make things easier 4. Don’t over emphasize technology 5. Personalize – Important to be seen face to face 6. Tell the truth, be clear and honest regardless of how ugly 7. Show the pain and the antidote 8. Help them become victorious – they want to win

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Are Boomers Prepared for Retirement

“Baby Boomers and Retirement Planning Strategy” prepared by Insured Retirement Institute (September 2015)

1. On average experience 25% lost during the recession

2. 40% have no retirement savings

3. 69% have no defined benefit plan

4. 59% of those with savings have less than $250,000

5. 37% have saved less than $100,000

What is your Message to Boomers?


1. Save more so they can retire

2. Suggest retiring at age 70

a. Reduces needed retirement savings by 28%

b. Increases Social Security benefits by 132%

c. Provides 5 more years to save for retirement

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What Matters to Gen X & Millennials (Gen Y)


1. The Individual, the Ego 2. How things will affect their lives and future 3. How things will make them distinct 4. How you’ll impact their future 5. How they’re different

Talk to Them About Them & Where They are Going

You & Your History Don’t Matter

Key Points about Gen X (1965-1979)


1. Cynical, pragmatic, and difficult customer 2. Biggest online shoppers 3. They don’t buy they STALK products/services 4. Wary of experts – educated consumer 5. Prefer email and likely to let your call go to voice mail 6. Texting is ok in response to a request or sending information 7. Seldom make decisions face to face – they want to research 8. Use of their time is more important than a relationship with you 9. They are loners, a nomad group, but loyal due to their research

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How to Connect with Gen X


1. Offer all options – This allows you to teach & avoids skepticism 2. Emphasize short-term solutions – goal for today 3. If this doesn’t work emphasize Plan B 4. Anticipate use of technology to validate your communications 5. Distrust anything too promotional, sales-y or marketing-y

a. Sell the steak not the sizzle 6. Avoid vanity advertising 7. Too much face time is micro managing

Gen X and Retirement


1. Promotions come 6 years later than their predecessors

2. Their highest income years will come 6 years later

3. They delay saving from their excess earnings 6 years later

4. They will need to save more now to retire on time

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What is your Message to Gen Xers?


1. Save more so they can retire on time

2. Defer excess spending until later

3. Give them a plan B

4. Engage them in the decision-making process

Key Points about Millennials (1980-2000)


1. Individuals yet pack animals…Herd instinct 2. Optimistic and they are well looked after 3. Not adults or adolescents – Adultolescent

a. Engage, interact & talk like they are 5-7 years younger 4. Huge goals 5. Use technology to stalk and stay updated – social media important 6. Meetings with one turn into meetings with more – they like people 7. Future not too relevant to most 8. Celebrate their individualism and uniqueness 9. Heightened sense of social responsibility

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Telenav Study, August 2011

http://www.telenav.com/about/pr-summer-travel/report-

20110803.html

Phone Attachment

When asked if they would rather give up their

mobile phones for a week versus a series of

other things:

70% would give up alcohol

63% would give up chocolate

55% would give up caffeine

54% would give up exercise

33% would give up sex

22% would give up their toothbrush

21% would give up their shoes

Source: MobiThinking, 2011 Annual Estimate, 1.5T in US, 60/day/teen

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Symbols are a Language with Meaning

Social network – 316m

500m tweets/day`

Social network – 1.49b

Local search app – 50m


Adds 2/second – 39m students/graduates

Share photos – 400m

Share video – 1b

300 hrs uploaded/minute

Social bookmarking – 100m

Social network focused on music – 32m


8 Trillion text messages/year

PwC's 6th Annual Digital IQ Survey

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How to Connect with Millennials


1. Demonstrate its immediate application to them 2. Demonstrate how it is unique to them 3. Demonstrate how it is what their friends have but with a

unique twist

Millennials and Retirement

Research suggests Millennials are a nomadic labor presence.

According to a 2014 survey:

1. 60% of Millennials leave their jobs within their first 3 years,

2. The median job tenure for Millennials is just above 3 years, [Department of Labor, “Employee Tenure in 2014,” Bureau of Labor Statistics News Release, September 18,

2014]

3. High turnover means higher replacement costs,

4. Financial security (independence) is of high importance,

5. Retirement plans have a role if properly explained,

6. 76% of Millennials reported that retirement benefits are a major

factor in their decisions to accept future job offers. [Transamerica Center for

Retirement Studies, “15 Facts about Millennials’ Retirement Readiness and 7 Steps for Long-Term Success,”

15th Annual Transamerica Retirement Survey of Workers, July 2014.]

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Are Millennials Prepared to Retire?

1. Risk-averse tendency and shy away from equities

2. Favor financial independence versus retirement

3. Drawn to online robo-advisors

4. Favor technology but desire a financial mentor/Advisor

5. Auto features are embraced

6. They are saving more than expected

7. But, they are not saving enough due to debt

“Auto-Features Put Millennials on Path to Retirement Readiness”, by Jean Young, Sr Research Analyst with the Vanguard Center for Retirement Research

What is your Message to Millennials?


1. Save more so they can achieve financial independence

2. Save now to make up for 1/3 of their time as an ineligible

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Generational Review

Boomers Gen X Millennials

Selling Focus on their

history

Focus on

WIIFM

Focus on their

experience

Enrolling Help them help

themselves

Make up for lost

opportunity

Securing

Independence

Hiring Value their

experience

Their actions impact

their future

Emphasize

flexibility

Technology Lite users

needs explained

Digital focus

WIIFM

Digital focus

Social Value

Where is Your Best Opportunity & How do You INSPIRE Them?

1. Blind Squirrels

2. Novices

3. Non-financial advisors (CPAs & Esq)

4. Payroll

5. Veteran

6. Expert

Your best opportunities will dictate how you spend your

capital on technology!

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What Advisors Want (Value Add)

1. Leads – sales support

2. Sales tools

3. Online proposal generation & plan design

4. Automated and integrated disclosures and contracts

5. Fiduciary & Legal support / education

6. Benchmarking

7. Investment Reporting

8. Model management (Custom QDIA solutions)

9. Participant tools

10.Electronic access to plan and participant level reports Unlocking the value of your data may require collaboration with

competitors to build cost effective technology that adds value!

Follow the Lead of Successful DCIO Marketing Strategies

1. JP Morgan

a. $1 billion in TDF assets

b. 7 digit expense to build TDF tool

c. Released in 2009 – 7 years ago

d. Now $27 billion in TDF assets

2. Allianz

a. $50 million in seed money allocated to TDFs

b. Released October 2012

c. Now $500 million in 2 years with industry lagging performance

3. PIMCO and Principal have adopted TDF tools

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Share the Cost & Share the Glory

Technology will help You stay relevant

1. Invest in a technology differentiator

2. Leverage your data which no one else has

3. Your data is more valuable when combined with other

data

4. Co-opetition is a path to

a. more data,

b. innovation, and

c. low cost technology solutions

Leverage Your Strengths to Compete Successfully

QUESTIONS

David J Witz, AIF®, GFS®

CEO/Managing Director

FRA PlanTools

704-564-0482

[email protected]

Managing Director and founder of Fiduciary Risk Assessment LLC (FRA) and PlanTools, LLC, a consulting and technology firm. He has 33 years of industry experience including serving as an expert witness on such prominent cases as ABB, Bechtel, Deere, Edison, General Dynamics, International Paper, Kraft Foods, Lockheed Martin, and United Technology. His experiences as an expert witness have fueled the development of PlanTools retail and custom technology solutions including benchmarking, compliance, fiduciary governance, advisor qualification assessment, revenue sharing modules and custom target-date analyzer tools for Allianz and Principal Financial Group. Copyright FRA PlanTools 2015

mailto:[email protected]

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This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. In preparing this material we have relied upon data supplied to us by third parties. While reasonable care has been taken to gauge the reliability of this data, we provide no guarantee and make no representation or warranty (express or implied) as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, FRA PlanTools, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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What the Tea Leaves Say About the Future of TPAs ... · success • Team based – get to the point • Innovative problem solving • Prefer cross-generational initiatives • Team