Comprehensive Advice in 401(k) Plans? Not As Difficult As It Sounds

Offering individualized advice in a 401(k) plan—one tough nut to crack. While the asset size of plan in total makes it attractive to manage, each individual plan participant rarely has the asset level necessary to make it worth an advisor’s time.

Mike Scarborough has the solution.

“Our service will step in and act as a third-party asset manager within the plan; we’re not taking the money out of the plan,” Scarborough, president of the appropriately named Scarborough Capital Management, says. “The advisors, registered reps and RIAs work with the client and is the main point of contact, but we manage the trading, billing, reallocating, rebalancing and anything else the employee needs with regards to the portfolio.”

So how does he do it? With a heavy emphasis on technology and scale of course, but also by “making a lot of money, spending a lot of money and spending the last 24 years making a lot of mistakes.”

Yet four years ago, he felt confident enough to take the “Intel Chip” out of Scarborough Capital Management and market it to other advisors and plan sponsors.

"We broke Retirement Management Systems out from Scarborough Capital Management and have really ramped up over the past two years,” he adds. "It’s managing for the individuals themselves; it’s not a broker-of-record. A broker-of-record's first responsibility is to the company. We became the conscience for the employee of the company.”

A lot of advisors will attempt to do individual financial planning for a client, he notes, but it’s usually them scribbling an allocation on a statement; there’s rarely a record of what was recommended.

“Advisors come to us and say, ‘We’d do what you do if we had the time,’ so we take that piece of their business and manage it for them. For many advisors, they handle the IRA and other qualified plans, but can’t see the 401(k). Conversely, for many clients, this is their largest asset outside of their home, so it has to be included.”

He emphasizes it is very much a scale business that’s dependent on the numbers.

“Most advisors just wait for the rollover,” Scarborough concludes. “We’re able to get in there before and help teach the client, which gives the advisor a better chance to acquire eventually retain the rollover assets.”