‘Real’ Retirement Plan Advisors Recognize Issues and Take Action

‘Real’ Retirement Plan Advisors Recognize Issues and Take Action
July 12, 2016 Barry Steelman

Retirement income is a major issue and we need leaders to step up and take responsibility. For decades, retirement saving plans have been poorly managed at the expense of its participants. It is time for organization leadership and advisors to be the change they see in the world.

The world we live in has changed. Once upon a time an employee would work at the same company for thirty or so years, receive the proverbial gold watch, and a monthly pension check for the rest of their lives. Today’s world is much different and the transition has led to a broken retirement system. As traditional pensions were replaced with 401(k) and 403(b) plans, the responsibility to develop and implement a retirement income savings strategy was transferred from the employer to the employee.

What was left out of the transition was education.

If the responsibility of retirement savings was transferred to the employee, then the employee needs to fully understand the circumstances and responsibilities and fully understand the opportunities and consequences of their decisions, either for better or worse. Frankly, this education has not been provided and it needs to change if we have any chance of having a sound and successful retired population.

The retirement plan advisor sits in a unique position to make this happen for millions of Americans but they often fail to do so. As the “trusted advisor” to the retirement savings of an entire organization my profession has, for the most part, become complacent and failed to deliver the education and guidance staff need to make smart and informed financial decisions.

Much of this comes from the fairly lackadaisical service surrounding retirement savings plans. For the past few decades insurance companies, brokerages, and payroll companies have dominated the industry by employing a heavy sales approach. Like many sales, the salesman sells the product, implements, and is on to the next one. Sales have historically served as big paydays and continue to line the salesman’s pockets for years to come with little to no attention to the account.

Let me pose a few questions: When was the last time your retirement plan representative came in and talked to you about relevant personal financial planning topics? Did they offer to speak with individuals one-on-one? When was the last time the representative came in and shared strategies to help staff piece together retirement income using pensions, savings, social security, and the value in their home? If ‘never’ and ‘a long time ago’ were common answers perhaps it is time to start asking questions.

Here are what real advisors are doing in the marketplace… they are recognizing the issue, accepting responsibility, and delivering value through education, compliance, and success:

Comprehensive and Targeted Education

Personal finance was never taught in grade school, high school, or college, yet is a major determinant of success to hundreds of millions of Americans. I personally believe “home economics” is a vastly underappreciated curriculum in our public education system. In seventh grade I learned how to operate a safe kitchen and bake muffins. Now that is all great and everything, but understanding the basic concepts of money would have been all the more valuable. It is no surprise the American Psychological Association lists financial stress as the biggest stress we face and goes on to share that financial stress leads to unproductive hours in the workplace.

An advisor’s education goal when working with participants should be clear, straight forward, and no different than the process they employ when working with individual clients. By understanding the needs of the participants through survey and conversation an advisor can identify financial issues causing financial stress beyond the pure mechanics of the plan. By understanding the core financial issues, a real advisor makes a difference by developing a curriculum that is focused, targeted, and worthwhile of staff’s time.

Commonly we hear retirement income, but in many cases the needs are different. I often hear about people’s struggles with debt, including student loans, credit cards and mortgage debt. This issue, although not directly related to a retirement savings plan, is an issue that is focused and top of mind to a vast majority of our population. Real advisors can identify these issues on an organization-wide scale, have the knowledge and skills to produce relevant education, and can completely change how staff view their relationship with their organization’s retirement plan advisor. No longer viewed as the “401(k) guy” the advisor evolves into the more valuable role of “in-house personal financial planner”.

Keep the Organization Safe

By sponsoring a retirement savings plan an employer is enabling themselves, management, and all other staff to employ tax-advantaged strategies that can place all in a better position for financial success. However, with that responsibility comes legal risk. Risk that if the plan is not managed properly then the plan trustees become personally liable for damages to the plan and its participants. In many cases if the employer lacks the expertise to manage the plan per ERISA’s “prudent person rule” they are compelled to hire outside professional assistance.

Working with a real advisor the employer can transfer risk and receiving expert consultation. One of the biggest issues today is the topic of plan fees. Today plans are getting sued left and right over the high amount of fees service providers (advisors included) are charging. Ask if the advisor to your plan is working as an ERISA 3(38) Investment Manager where the LEGAL responsibility of prudent investment management is transferred to the advisor. Tantamount to an insurance policy, this arrangement holds the advisor personally liable for any excessive investment management fees and undiversified investment options where before the plan trustees were on the hook.

Enabling Success

Now, an advisor’s role is not just about educating staff and keeping the organization out of the courtroom, it is about fostering financial success to all. Should key executives want to save as much as possible into the plan – safe harbor provisions, additional employer contributions, and 457 plans not only provide an excellent benefit, they can also help defer the maximum amount of tax liability. Given age and experience, an executive can potentially save tens of thousands of dollars per year pre-tax given proper plan design. By working with a real advisor the goals of key executives can be satisfied. Again, no different than working with an individual client, just on an organization-wide scale.

Additionally, an advisor should work with management and develop organization-wide goals. This goes back to the core issue, our country has a brewing retirement income problem. If we know it takes about 15% savings per year over the course of our career to replace our income in retirement, then let’s make that metric a determinant of plan success and hold the organization and the advisory team accountable. If the goal is to have everyone participate and contribute at least 8% then make it public and have an advisor to support the effort along the way. By going above and beyond the minimum requirements we can expect to achieve above and beyond results.

We Need Leaders

We all work so hard for our organizations, our causes, and the community –  it is something we can call “Good Samaritan Capital”. Guilty of it in my own right, we often pour all that capital into our profession and can forget, or have nothing left in the tank for ourselves. But I can assure you, taking the time to serve your staff and key executives is worth the effort. Let the process serve as a platform to review compensation and benefits packages, reinvigorate staff and most importantly pave a way to success.

When I have the opportunity to work with plan participants I feel honored and a steward of success. I worked with a widow who claimed she was never going to be able to retire and she was depressed. Without the assets to garner the attention of an individual financial planner we went to work. By reviewing her Social Security statement, savings, and value in her home we put together a successful plan! She was able to accomplish a huge milestone in her life and the success she felt only made me want to come back for more. This is the attention and care advisors should employ and organizations should take note and applaud these efforts.

I may be preaching to the choir – but real problems in this world are not solved by government bureaucrats and editorial pundits, they are solved by the leaders of our communities who take the effort to recognize problems, accept responsibility, and take action. Never fear being awesome.

Drew Hefflefinger is a CERTIFIED FINANCIAL PLANNER™ at Engage in Wealth in Denver, Colorado. Drew is the endorsed advisor in Colorado and Wyoming for the ASAE Retirement Trust. Drew can be contacted at drew@engageinwealth.com.

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