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 Industry
Insight from Fred Barstein
2009 is the Year of the Advisor
With the popularity
of Target Date funds and the Auto Plan as a result of the
2006 Pension Protection Act (PPA), some observers had opined
that advisors would become less important in helping
companies with their corporate retirement plans.
If participants were
automatically enrolled and fund selection is controlled by
the target date providers, what would be the advisors’ role?
So why are more and more plan
sponsors abandoning the direct sold model and hiring
advisors are an incredibly growing rate?
As shown in the
chart below based on almost 20,000 surveys in 2009 and close
to 3,500 in May, over 80% of DC plans with less than $100
million in plan assets indicated that they were using an
independent financial advisor.
Compared to last May, there’s a
stunning increase trending even higher.
Retirement advisors roles have
changed over the years from:
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Selecting the right products and
vendors, to
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Creating the right process with a
focus on fiduciary concerns, to
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Managing to the right outcome for
participants and sponsors
More plan sponsors than ever realize that
not only do they need an advisor to protect them from
liability (process), manage costs and limit work for
diminishing HR and finance staffs, participants need someone
to speak to or be available to answer thorny questions,
especially after the recent market meltdown, like, “What
happened to my account balance?” or, “How will I ever be
able to retire?”
Many of the most popular target date providers have failed
their 2010 clients either out of greed, ignorance or
neglect. Fewer plan
sponsors are instituting automatic enrollment because they
have to match up to 2.5% to qualify for the PPA’s safe
harbor provisions.
Bob Reynolds, CEO at Putnam Investments and architect of
Fidelity’s DC business, wisely suggested at the recent
401kWire Thought
Leader’s Summit in DC that all
participants should be automatically enrolled and sponsors
that match should be rewarded with a tax credit.
But until then and perhaps even after, the notion
that sponsors and participants can be guided from above
without expert, human advice is ridiculous.
There will always be some challenge facing sponsors
and participants that only an experienced retirement advisor
can answer. Clearly,
more sponsors are coming to that realization and, of those
selecting an advisor, more are becoming discerning buyers.
Fewer sponsors are hiring family members, college
roommates, golfing buddies or personal financial consultants
who do not have the necessary experience realizing that
these kinds of “favors” can result in disaster, especially
for participants in need of answers to very difficult
questions.
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