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    At PensionPro, the first thing that we ask a potential customer is, “What is your business model?” Is your firm more functionalized where many staff members participate in the execution of your services, or is there one administrator assigned a book of plans who takes care of every service for a customer? Some call the latter “soup to nuts” or a “traditional” model. You may think that the traditional model applies more to smaller firms, but after onboarding more than 200 retirement services firms to PensionPro’s products, we noticed the number of plans that a firm administers isn’t necessarily indicative of the business model. A better indicator is the company’s growth rate. In a growing TPA firm the traditional business model quickly breaks down. Caseloads start escalating, deadlines become frenetic, new clients that are being brought onboard take a backseat to urgent regulatory deadlines, stress increases and, sometimes, staff members leave.

    Hey wait, growth is supposed to be a good thing, right?

    Growth is something every business dreams of, but sometimes as the business expands the foundation lacks the support necessary to hold additional weight. Where does Human Capital Management (HCM) tie into growth? Though HCM is a broad practice term used by many large corporations, it is very applicable to our retirement plan servicing community. HCM deals with the practice of workforce acquisition, management and optimization. In the retirement service industry, our human capital is the backbone of our businesses, with salary and salary-related items typically averaging 55% to 70% of a firm’s expense budget. Many firms in the retirement plan industry started their firms as practices, structuring the service model around individual expertise by hiring a consultant or administrator after the addition of 70 or 80 new plans. Those consultants fully service their “caseload,” performing all service functions for the client, from collecting the year end data to processing participant distributions. As firms grew, the traditional model became harder to sustain and was fraught with more risk. minimize risk and maximize each consultant’s efficiency, many firms started to functionalize their workflow process through the acquisition, management, and optimization of human capital – human capital management became a central focus.

    Acquisition: We have all experienced how difficult it is find qualified candidates to fill positions within your firm. In the traditional model, finding and acquiring these staff members is exceedingly difficult since the job description is “must be able to address everything that can happen to a plan”. Also, since the traditional model does not lend itself to standard operating procedures, the training process is mostly accomplished by “absorbing” the company’s culture over time. Hiring rates can be suppressed since the ability to train the individuals is neither digestible nor standard. Finding the perfect employee with the perfect skill set at the perfect time is, well, unlikely.

    In a functionalized model, job descriptions are more readily and narrowly defined making it easier to find qualified personnel. Training is accomplished on smaller subsets of information with a more standardized way of processing. The early steps of functionalizing are typically creating distribution and loan or trust accounting positions. Firms should consider delineating different skill levels within compliance positions. Looking for a candidate that understands new comparability calculations is a different skill set than someone who can process Safe Harbor plans; a Level 4 administrator can have a dramatically different defined skill set than a Level 2. In a growing firm, onboarding can easily become its own position/department. Functionalization expands the field for hiring qualified candidates and makes training more definable and executable and ultimately relieves some of the pressure.

    Management: It seems on the surface that managing in the traditional model is easier. The staff members are more independent and work their own caseloads. But what happens when deadlines are approaching and all the work isn’t completed? Is it possible too many plans have been added and the caseloads are skewed? Typically, someone senior steps in and the unfinished work will get redistributed to other employees. This unexpected workload increase causes friction among those who feel that someone else’s lack of planning just became their emergency. It is common to hear the complaint that the caseloads aren’t equal in some way; either in complexity or plan size, or one consultant got “all the new plans” or “all of the larger plans”. It is very difficult to create equally difficult caseloads since the addition of the next few plans, or a large plan, tends to upset the balance all over again.

    In the functionalized model, on a team level or even firm wide level the staff is operating in a more unified manner to complete the work by the appropriate deadline. The stress between coworkers typically evaporates since work is allocated and reallocated on a consistent basis to keep the process moving, not log jammed behind an individual. In the end, though the same amount of work gets completed, the flow is predictable and problems are solved in a team environment with less stress or the surprise of additional work.

    Optimization: Most firms that utilize the traditional model firmly believe that the structure optimizes Plan Sponsor relationships. There is no argument that the right person can provide great and consistent customer service. But, where does the customer loyalty lie? With the administrator? With the firm? If an employee moves to another firm, do you run the risk that some clients may follow? If the employee is out ill or on vacation, is there a backup plan? An error that was made once might be made repeated year after year through lack of knowledge or oversight – what happens then?
    Functionalized firms strive to optimize the skill sets of each team member which increases their productivity and lowers stress levels. Increased productivity means more revenue generated per employee and more net income to the bottom line. The health insurance industry implemented this ideology decades Highly skilled staff members performing tasks that can be completed by a more junior individual impacts the company’s bottom line heavily and directly. Not to mention the lost learning opportunity for the junior staff member. There is no question that a functionalized team optimizes a firm’s human capital while spreading workloads and risk across team members.

    Growth is good and is absolutely something to be excited about. To prepare a business for success and growth, it is imperative that a solid foundation is in place to support it. The pieces of human capital management: acquisition, management and optimization are key to building a functionalized team. No matter what your current model, functionalizing some of your services leads to delivery of a better product with a more sustainable level of customer service, with less risk and more profit.