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Pulse Logic 2010 2010 Retirement Plan TPA Study: Demographics, Behaviors, New Business

1 Pulse Logic Retirement Plan TPA Study: Demographics, Behaviors, New Business Acquisition, Practice Management, Product Preferences, Performance, and Business Characteristics

2 2 Pulse Logic 2010 Retirement Plan TPA Study Demographics, Behaviors, New Business Acquisition, Practice Management, Product Preferences, Performance, and Best Practices Survey Respondents A robust sampling of seasoned TPAs from across the country responded to this two part study. The first portion was conducted in July while the second was completed in October of Each survey attracted over 250 TPAs to submit complete questionnaires. 400 TPAs participated in at least one of the two surveys. While the respondents to each survey were not identical, the demographics of each group proved almost identical, affirming the statistical significance of each sampling. Survey Topics This study was developed to provide key insights into: TPA demographics Behaviors New business strategies Product preferences Business characteristics Performance Best Practices Methodology Participating TPAs completed an online survey revealing their demographics, attitudes and perceptions toward product vendors, support, systems, and products; their degree of reliance on financial advisors, product vendors, wholesalers, and other professionals in the new business acquisition process; their levels of performance in the past three years as well as how they manage their practice. In addition to the online portion of the study, Pulse Logic interviewed select TPAs by phone to gain a better understanding of their business and support needs. The phone interviews coupled with the online results, allowed Pulse Logic to capture an even more comprehensive understanding of the TPA marketplace. Segmentation All of the responses to the survey questions in this report have been segmented by consulting, consulting with a dedicated sales resource, and producing TPAs. The legend to the right indicates color designations used in the reportʼs graphs.

3 3 Pulse Logic 2010 Retirement Plan TPA Study Demographics, Behaviors, New Business Acquisition, Practice Management, Product Preferences, Performance, and Best Practices High level findings of the study indicate: -the business is mature with minimal formation of new TPA businesses -TPAs are small business -the median number of plans administered by a TPA is approximately 500 -TPAs anticipate little impact from new fee disclosure regulations -median revenue growth lies between 5 and 10%, revenue per employee between $100,000 and $135,000, and client retention between 94% and 97% -nearly half of TPA operations are client centric -ample shelf space still exists for product vendors and managers to enter this channel or grow TPA distribution -TPAs are most dependent on advisors for new business, followed by referrals -ASPPA is the most popular conference to attend and is the most frequently cited source of best practices -the majority of TPAs have individuals with accreditations -revenue per employee tends to be highest among producing TPAs -more business was lost in 2009 than 2008 or consulting TPAs with a dedicated sales resource tend to have more management infrastructure in place -Relius is the leading provider of systems for TPA functions

4 4 I. Demographics II. Behaviors III. Business Performance IV. New Business Acquisition V. Practice Management VI. Product Preferences VII. Consulting Services VIII. Business Characteristics

5 I. Demographics 5 Years in business: <5 Years 5-10 Years Years > 20 Years 0% 23% 45% 68% 90%

6 I. Demographics 6 Number of employees: < >50 0% 13% 25% 38% 50%

7 I. Demographics 7 Number of locations: or more 0% 18% 35% 53% 70%

8 I. Demographics 8 What percentage of revenue comes from administering retirement plans? % of revenue % 20% 40% 60% 80%

9 I. Demographics 9 What are your total number of plans under management? < >1000 0% 13% 25% 38% 50%

10 I. Demographics 10 What are the total assets of your plans under management? < $25M $25-100M $ M $ M $500M - 1B > $1B 0% 13% 25% 38% 50%

11 I. Demographics 11 Indicate total number of participants in your book of business ,000 10,000-25,000 25, ,000 > 100,000 0% 10% 20% 30% 40%

12 I. Demographics 12 As a TPA, do you: Outsource record-keeping to a product vendor Perform daily valuations in house Both 0% 18% 35% 53% 70%

13 II. Behaviors 13 When segmenting clients, which one of the following is most important? Plan Assets Profitability Revenue 0% 18% 35% 53% 70%

14 II. Behaviors 14 What type of meeting do you prefer when meeting with: Most Important Clients In person Phone Important Clients In person Phone Least important clients In person Phone 0% 25% 50% 75% 100%

15 II. Behaviors 15 How often do you meet with: Most important Annually Semi-annually Quarterly Never Important Annually Semi-annually Quarterly Never Least important Annually Semi-annually Quarterly Never 0% 18% 35% 53% 70%

16 II. Behaviors 16 Which of the following conferences do you expect to attend in the next 12 to 18 months? (Check all that apply) ASPPA Product Vendor NIPA CFDD Broker Dealer SPARK 0% 25% 50% 75% 100%

17 II. Behaviors 17 Do you consider yourself a functional fiduciary on the plans you administer? Yes No 0% 23% 45% 68% 90%

18 II. Behaviors 18 What are your preferred sources for regulatory, compliance, and plan design updates? (Check all that apply) Associations Product vendors Subscription services Experts Internet Other 0% 20% 40% 60% 80%

19 II. Behaviors 19 Pending fee disclosure legislation will cause the following percentage of my plans to change administrators: % 25% 50% 75% 100%

20 II. Behaviors 20 Pending fee disclosure legislation will cause the following percentage of my plans to change vendor: % 25% 50% 75% 100%

21 II. Behaviors 21 Does your firm have any professional certifications or accreditations? CFA Yes CPC QKA QPA EA No CEBS APA 0% 25% 50% 75% 100% JD 0% 13% 25% 38% 50% Other answers included: MSPA, MAAA, AIF, CEFEX, CFP

22 III. Business Performance 22 Average annual sales growth (plans): <5% 5-10% 10-15% 15-25% >25% 0% 18% 35% 53% 70%

23 III. Business Performance 23 Average annual revenue per employee <$100,000 $100, ,000 $135, ,000 $170, ,000 > $200,000 0% 15% 30% 45% 60%

24 III. Business Performance 24 Average annual client retention <80% 80-87% 88-93% 94-97% >97% 0% 10% 20% 30% 40%

25 IV. New Business Acquisition 25 Which of the following best describes your sales strategy? (Check all that apply) I am a producing TPA 13% I am a consulting TPA 55% I am a consulting TPA who has a dedicated sales resource 33% 0% 10% 20% 30% 40% 50% 60%

26 IV. New Business Acquisition 26 What are your two most important sources for new business? Referrals Advisors Professional Affiliations Marketing Programs Providers wholesalers Cold Calling Referrals Advisors Professional Affiliations Marketing Programs Providers wholesalers Cold Calling 0% 13% 25% 38% 50% 0% 20% 40% 60% 80% Most important First and second most important

27 IV. New Business Acquisition 27 If client referrals account for more than 50% of your new business, do you have a client referral program in place? Yes 6% No 94% 0% 20% 40% 60% 80% 100%

28 IV. New Business Acquisition 28 Do you have a relationship with a payroll vendor for new business and/or integrating services for a client? 100% 75% 50% 25% 0% Consulting with dedicated sales resource Consulting Producing

29 IV. New Business Acquisition 29 How many plans did you sell in each of the last three years? 2008 < < < % 15% 30% 45% 60%

30 IV. New Business Acquisition 30 What were the cumulative new assets of plans sold in each of the last three years?: 2008 <$1m $1-5M $5-10M $10-50M $50-200M >$200M 2009 <$1M $1-5M $5-10M $10-50M $50-200M >$200M 2010 <$1M $1-5M $5-10M $10-50M $50-200M >$200M 0% 13% 25% 38% 50%

31 IV. New Business Acquisition 31 What percent of plans under management did you lose in: > > > 10 0% 15% 30% 45% 60%

32 IV. New Business Acquisition 32 What are the two most important brands when selling your services? Most important My firm Professional referral source Advisor Product vendor or asset manager Other Second most important My firm Professional referral source Advisor Product vendor or asset manager Other 0% 20% 40% 60% 80%

33 IV. New Business Acquisition 33 Please indicate the following initiatives you have in place (check all that apply). Annual sales and marketing plan Brand value statement Active PR and ad program Documented policies and procedures for client service issues 0% 23% 45% 68% 90%

34 IV. New Business Acquisition 34 If you have a brand/value proposition statement, is it clearly stated on your marketing materials, proposals, and website? yes no 0% 15% 30% 45% 60%

35 V. Practice Management 35 Do you create an annual business plan? If yes, what does it include? Consulting with sales Accounting and Finance HR Management Consulting Operations Producing 0% 18% 35% 53% 70% Sales and Marketing Mergers and Acquisition 0% 25% 50% 75% 100%

36 V. Practice Management 36 What statement best describes the way your operations are structured? Organized by client Organized by function Organized by client based teams where individuals handle specific functions 0% 18% 35% 53% 70%

37 V. Practice Management 37 Do you have documented business practices? Consulting with sales Consulting Producing 0% 25% 50% 75% 100% If yes, have you established a program to measure results against goals? Consulting with sales Consulting Producing 65% 67% 69% 71% 73%

38 V. Practice Management 38 Do you follow industry best practices? Consulting with sales Consulting What is your source for best practices? Producing ASPPA 0% 18% 35% 53% 70% Conferences Audits Industry Publications NIPA Peers 0% 13% 25% 38% 50%

39 V. Practice Management Do you outsource any of your TPA functions? 39 Consulting with sales Consulting Producing 0% 13% 25% 38% 50% If yes, which functions? Distributions Documents Recordkeeping Client Service Testing Filings Other 0% 13% 25% 38% 50%

40 V. Practice Management 40 Which of the following statements best describes your approach to technology? We frequently upgrade to the latest software and regularly upgrade our hardware We use existing software and hardware until we have to upgrade We wait for the the kinks to be worked out of the latest software and hardware before upgrading We have developed our own software 0% 10% 20% 30% 40%

41 V. Practice Management 41 Which of the following do you have in place? (check all that apply) Job Descriptions Job Descriptions tied to salary ranges Employee Training Bonus/Merit Raise System Structured manner to handle personnel issues Structured Termination Process Structured Review Process 0% 25% 50% 75% 100%

42 V. Practice Management 42 How often are employees reviewed? Annually Semi-annually Quarterly Other 0% 20% 40% 60% 80%

43 V. Practice Management 43 Which of the following best describes your pricing strategy? Hourly Cost Plus Price to market Combination of cost plus and price to market 0% 15% 30% 45% 60%

44 V. Practice Management 44 How frequently do you bill your clients? Annually Semi-annually Is your billing proactive or reactive? Quarterly Monthly 0% 13% 25% 38% 50% Reactive 27% Proactive 73%

45 V. Practice Management 45 What financial reports do you use to manage your business? Balance Sheet Accounts Receivable Income Statement Cash Flow 0% 18% 35% 53% 70%

46 V. Practice Management 46 What type of accounting software does your practice use? If brand name or other, what system do you use? Brand Name Peachtree Custom Written Quickbooks Other Relius 0% 20% 40% 60% 80% 0% 18% 35% 53% 70%

47 V. Practice Management 47 Do you have a dedicated service team to work with plan sponsors and participants? Dedicated service team Yes No If no, who services the business? (check all that apply) 0% 20% 40% 60% 80% Principals/Sr mgmt Admin of plan Admin of function Advisor Product Vendor 0% 23% 45% 68% 90%

48 V. Practice Management 48 Do you get involved in advisor and provider service issues? Consulting with sales Consulting Producing 0% 25% 50% 75% 100%

49 V. Practice Management 49 Do you have a disaster recovery plan? Consulting with sales Consulting Producing 0% 25% 50% 75% 100%

50 V. Practice Management 50 Do you have a succession plan in place? Consulting with sales Consulting Producing 0% 25% 50% 75% 100% If yes, is it properly funded? Consuting with sales Consulting Producing 0% 25% 50% 75% 100%

51 VI. Product Preferences 51 How many products do you typically present to a plan sponsor at point of sale? N/A or more 0% 10% 20% 30% 40%

52 VI. Product Preferences 52 In 2010, will your new business be: GVAs Security Products Mix 0% 23% 45% 68% 90%

53 VI. Product Preferences 53 With how many product vendors do you have business? > <5 0% 13% 25% 38% 50%

54 VI. Product Preferences 54 Do you expect to expand the number of product vendors with whom you do business in the future? 100% 75% 50% 25% 0% Consulting with dedicated sales resource Consulting Producing

55 VI. Product Preferences 55 At what plan size are insurance company group annuities most appropriate? Not appropriate at any size <$1M <$3M <$5M <$10M Any size 0% 8% 15% 23% 30%

56 VI. Product Preferences 56 At what plan size are NAV/securities products most appropriate? Any size >$1M >$5M >$10M Not appropriate 0% 13% 25% 38% 50%

57 VI. Product Preferences 57 What are the three most important attributes of a product vendor? Accessibility of plan data Client service Commitment to the TPA business Fees Marketing support Investment lineup Advisor referrals Compensation flexibility Enrollment ERISA account capabilities Existing relationships Fiduciary support Advisor relationship Wholesaler support 0% 20% 40% 60% 80%

58 VI. Product Preferences 58 The most important product vendor attribute: Accessibility of plan data Client service Commitment to the TPA business Fees Marketing support Investment lineup Advisor referrals Compensation flexibility Enrollment ERISA account capabilities Existing relationships Fiduciary support Advisor relationship Wholesaler support 0% 8% 15% 23% 30%

59 VI. Product Preferences 59 What are the three least important attributes of a product vendor? Advisor referrals Compensation flexibility Enrollment ERISA account capabilities Existing relationships Marketing support Wholesaler support Commitment to the business Fiduciary support Accessibility of plan data Client Service Fees Advisor Relationship 0% 10% 20% 30% 40% 50%

60 VI. Product Preferences 60 Identify the best way for product vendors and managers to support your business. How do product vendors demonstrate commitment to TPAs? Show up/meet 16% Ease of doing business 17% 17% 8% 30% Quality Recordkeeping/tech Partnering/joint marketing Service to TPA 20% 23% 16% Support TPA, Advisor, CPA, Lawyer Relations 4% Limit number of TPAs 2% Revenue Sharing 2% 45% 0% 5% 10% 15% 20% 25% 30% Advisor Referrals Commitment to TPAs Quality Product Service to Plan Sponsor Fees Quality product 50% Investments 10% 0% 15% 30% 45% 60% 75%

61 VII. Consulting Services 61 Do you offer consulting services in addition to routine administration services? Consulting with sales Consulting Producing 0% 25% 50% 75% 100%

62 VII. Consulting Services 62 If yes, for which type of plans? (Check all that apply) DC DB 403b 0% 25% 50% 75% 100%

63 VII. Consulting Services 63 Do you charge for your consulting services? Consulting with sales Consulting Producing 0% 25% 50% 75% 100%

64 VII. Consulting Services 64 If so, how do you charge? Hourly Flat fees 0% 23% 45% 68% 90%

65 VII. Consulting Services 65 What percentage of your revenue is generated from consulting services? % 15% 30% 45% 60%

66 VIII. Business Characteristics 66 Is your firm independent or affiliated with another firm? Independent Affiliated 0% 25% 50% 75% 100%

67 VIII. Business Characteristics 67 What systems do you use for daily valuations? Relius Datair Expert Plan Product vendor ASC 0% 20% 40% 60% 80%

68 VIII. Business Characteristics 68 What systems do you use for TPA compliance? ASC Datair Relius FDP 0% 15% 30% 45% 60%

69 VIII. Business Characteristics 69 What systems do you use for plan documentation? Accudraft ASC Corbel Datair Relius Ft. William McKay Hochman Sungard 0% 8% 15% 23% 30%

70 VIII. Business Characteristics 70 What systems do you use for client management? Access ACT Goldmine Nexus Salesforce Proprietary Datair Pension Pal Relius 0% 13% 25% 38% 50%

71 VIII. Business Characteristics 71 In your retirement business, what percentage of revenue is attributable to the following plan types: 401k 401a 403b >20 0% 8% 15% 23% 30% 0% 13% 25% 38% 50% 0% 23% 45% 68% 90% 457 DB Cash Balance >20 0% 23% 45% 68% 90% > 40 0% 15% 30% 45% 60% > 30 0% 20% 40% 60% 80%

VIII. Business Characteristics 72 Indicate firm revenue percentages attributed to each of the following: Fees Commissions < 60 0-10 60-70 70-80 10-20 80-90

72 VIII. Business Characteristics 72 Indicate firm revenue percentages attributed to each of the following: Fees Commissions < >20 0% 10% 20% 30% 40% 0% 20% 40% 60% 80% TPA overrides/concessions Other > 30 > 20 Years 0% 18% 35% 53% 70% 0% 23% 45% 68% 90%

2011 NIPA Retirement Plan TPA Study.

2011 NIPA Retirement Plan TPA Study. 211 NIPA Retirement Plan TPA Study Content 2 I. Sales & Marketing II. Management Practices III. Behaviors and Preferences I. Sales and Marketing 3 Please indicate the following based on 28, 29, and 21