The Role of the Advisor in a Retirement Plan

by Tom Allen and Mark Hebner - Friday, 09 October, 2015

We recently came across an article from Employee Benefit News that highlighted the overall disconnect that participants in small companies have with their 401(k) plan. The author stated very clearly, “small market participants, in particular, have less access to support and appear to be less knowledgeable and engaged in their workplace retirement plans.”

This is nothing new that we do not already understand. First, for most advisors, it is incredibly hard to make money on these types of plans. It is one of those opportunity cost conundrums that every advisor has to make in terms of where time is best spent. There is always an opportunity to sell a plan, but not necessarily enough time to serve the plan. The unfortunate byproduct of this calculation is plan participants who are not receiving the same retirement help as possibly some of their friends just because of the size of the company they work for.

It is also understandable that many plan participants are not engaged in their retirement plan. While everyone understands the importance of being fiscally responsible and saving for the future, it is not exactly a really exciting topic of discussion; unless you are like us who enjoy everything including reading research papers about this stuff. How many of us get excited about talking about our cholesterol levels? Nonetheless, we go to the doctor every year so we can be told what we need to do in order to stay healthy.

That is the same role that an advisor plays when it comes to retirement plans. The starting point is discussing the goal, which is inherently stated in a “retirement plan.” That is, the goal is to retire on our terms. Once we have the goal we must understand everything that goes into that goal. Investments, record keepers, TPAs, behavioral finance, costs, technology, and like any good coach, motivation are all part of a successful retirement plan. We are the motivator. We are the educator. We are the consultant. And ultimately we are the problem solver. If any one of these items is not working in the plan, then we need to find a solution.

Now many of the large retirement plans in the country are well aware of the big platforms like Transamerica, Great West, Mass Mutual, and Fidelity that have created “bundled” solutions in which one provider provides everything in one package. We can save this debate for a separate article, but in general, is works just fine for these large plans. They have enough assets in the retirement plan where fixed costs become somewhat negligible (usually associated with TPA services) and the advisor is willing to do absolutely anything for the client since it is usually one of their biggest clients. These types of bundled solutions don’t necessarily work well for everyone though, especially smaller 401(k) plans. It ends up being incredibly expensive and not enough resources (like the time of advisors) are given to plan participants.

This of course does not allow financial professionals like ourselves to roll over and say, “Well, we tried.” It is our responsibility to find a solution to that original goal. Here is a quick example. If we know it is going to be hard for an advisor to give their unlimited and undivided attention to a plan simply because of the opportunity cost associated with doing so, then it is imperative to try to give plans automatic features and investments that for the most part, take care of plan participants without the involvement of the advisor. In terms of plan features, this would be the automatic enrollment, automatic match, and automatic escalation features. In terms of investments, these would be qualified investment defaults that were target date funds. In terms of a recordkeeping platform, we would want there to be tools available for participants that allow them to adjust their savings rate based on the desired monthly income they want their portfolio to produce. Those tools do in-fact exist.

We believe that even with all of the automation in the world, there is still a need for the advisor to show up and bring energy to the topic of retirement. There is always going to be a frenzy of information being thrown at individuals about how they can grow their money, and it is imperative for the advisor to educate them. In all honesty, most people do not care, but those who usually do not care are easily taken advantage of. The next hot stock, getting into the business of flipping houses with unsecured loans from banks, or giving their entire savings to someone who says they can guarantee a 10% return for life knock on the doors of clients everyday. Financial schemes have been around since the beginning of time, but that doesn’t mean our clients have to become one of the victims.

The role of the advisor is not to simply sell a plan. We are the catalyst that gets people towards their goals. We must educate, protect, and motivate our clients into doing what is in their financial best interest. If something isn’t working, then we must find a solution that best serves our clients, not us. While bundled solutions bring convenience to the plan sponsor, it doesn’t necessarily represent the absolute best solution. Small plans can be better served by working with an independent advisor who can help them build a solution that puts them on an even playing field with their larger counterparts.

For more information about IFA’s Retirement Plan Solutions, please contact 888-643-3133 or visit here.