Successful retirement advisers realize that they need to leverage partners - especially those with deep pockets and resources - to build, grow and manage their retirement business. With price compression prevalent in all markets and especially retirement with the focus on fees, advisers have to manage a larger book to continue to grow revenue. The provider partners selected can make all the difference.

First, it's important to understand the various service models.

Fidelity is typical of the bundled approach where the record keeper does everything including the plan design, 5500 form and discrimination testing at the home office.John Hancock is best known for the unbundled model where a local, independent third party administrator is used for administration. In the third model, the TPA's perform record keeping and use a third party like Charles Schwab to trade and clear funds. Advisers like the unbundled approach because the local TPA can design the plan to meet the needs of the company, especially the highly compensated employees. In the bundled models, there is only "one throat to choke" if something goes wrong, while the open TPA is less costly and affords a greater choice of investments. Smart advisers will not be married to any approach, using the right one most appropriate for the needs of their clients as well as the adviser's business model.

The ABCs of ranking partners

Here is a sample hierarchy for how advisers might want to consider segmenting their provider partners.

An adviser should have three classes of providers. Tier A should consist of two to three partners. The adviser should strive to place between 60% to 80% of their business with these first-tier providers.

The second tier, or an adviser's B-providers, will be comprised of potential additions to the top-tier, as well as providers that offer unique services.

An adviser's C-tier of providers is comprised of firms that might be most suitable or applicable for special cases. They will also help the adviser's efforts to do a competitive analysis against its top-tier providers. Third-tier advisers are also useful in adviser of record situations.

It is wise to try to put as much business as possible with your A-level providers. Even without volume bonuses, which create conflicts of interest, providers will make special services available to their best customers, like dedicated relationship managers. It can also be challenging to understand the intricacies of many systems and products.

There are many things advisers should consider when selecting a provider partner. Here are several areas that advisers should carefully inspect.

• Market focus by plan size
• Adviser support models
• Commitment to the DC market and health of the parent
• Plan design and service models
• Investments
• Compensation
• Wholesaler quality and coverage
• Business development and support tools
• Asset allocation philosophy
• Rollover support

Advisers should find and partner with a local TPA that does not perform record keeping, working with unbundled providers that can act as the local pension specialist and plan designer. Select that TPA based on their level of experience and compatibility with the adviser's firm, and respect for the advisers business. That means either they do not sell directly to sponsors or, if they do, they do not poach business from the adviser. Some advisers have their own TPA business, which usually only works when they need that expertise to service their own clients.

Another important source of support is from investment-only providers, which is a relatively new phenomenon. As record keepers have opened up their platforms to more investments, IOs realized that they need to reach advisers to make the cut on which investments get selected for the plan menu. IOs can offer a myriad of business support and development tools even if they have fewer wholesalers in the field. Advisers can often leverage the support they need through their retail fund or annuity wholesaler who can bring in their retirement specialist counterpart when there is an opportunity or if that adviser's business calls for greater support.

The key to the whole relationship between an adviser and provider is the local wholesaler. Regardless of the quality of service and technology, if the wholesaler is inexperienced or unresponsive, advisers will not get what they need to be successful. Constant turnover is also a killer because it takes time to build trust. While the open TPA model is growing because of cost concerns and investment flexibility, the vast majority of these record keeping TPAs cannot afford to employ wholesalers. The local rep is often the principal of the firm. The other important criteria is respect for the adviser's business - the adviser should be asking whether the provider also sells direct to sponsors, the internal and external sales and service people dedicated to the adviser channel, and whether that provider will support the adviser's rollover business. Finally, in turbulent times, advisers need to be certain that their provider partners are committed to the market and that their parent is willing to invest in a capital-intensive business. The key determinant of a provider's commitment is the breadth and quality of the wholesaling force and whether the good ones are leaving or joining.

Selecting the right retirement partners is the foundation for a successful business, especially for advisers running a small business that has relatively limited access to excess capital. Just as important as whether the provider is a good partner, advisers have to be good partners as well. Advisers that respect their partners, who work efficiently with them and understand their business model, will find that providers are eager to help advisers build, grow and manage their retirement practice.

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Barstein, president of 401kExchange.com, can be reached at fbarstein@401kexchange.com

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Knowing who does what...

	Plan Administration	Record Keeper	Record Keeper
Bundled	Record keeper	Record keeper	Record keeper
Unbundled	Local TPA	Record keeper	Record keeper
Open TPA	TPA	TPA	Third party custodian/clearing house

Source: 401kExchange.com