Visions

When talking to platform providers using award winning communications in private, many will tell you that a significant portion of their materials are discarded or never used.  They also note that while participants want an easy solution, they do not want to learn.  Additionally, they are convinced that Target Date Funds could capture 70% of all participant directed DC type plan assets in the next five years.  Index and other low cost investment vehicles are also expected to gain in popularity for a variety of reasons, including risk mitigation. Given the expected growth in Target Date Funds, enticing participants into the plan and increasing contributions are the path to success. While managing risk through good governance will remain essential, advisors who craft plans to maximize participation and contributions will have the strongest value proposition.  Conversely, advisors focusing on participant education and asset allocation as cornerstones of their value proposition could lose market share.  This is exactly why outcomes based consulting is the primary theme of CFDD '12.

The quality of services plays a role in advisor benchmarking and this is where evaluation gets complicated. Nevertheless,  Fred Reish believes advisors can be benchmarked in a legally meaningful way by using considerations beyond assets, different benchmarks and other methods for establishing peer groups. Reish’s exclusive CFDD ’12 keynote on "Benchmarking Advisor Fees & Services From A Legal Perspective" will pioneer new ground by discussing the criteria for category measurement. If embraced, the new approach could change the industry. It could also help retirement plan specialists differentiate and demonstrate their value.

Because the new disclosure regulations require service providers to list the services they provide, registered reps providing model portfolios, plan level investment advice or participant level investment advice may be constrained by new home office policies designed to circumvent fiduciary status. If limitations are imposed, commission-based advisors will have to justify their value proposition to stay in the game. Plan services, pricing methodology and defined advisory relationships common in the large plan market are now permeating the mid-market. Given that benefit costs and cost control are top of mind, the allocation of plan expenses should certainly be part of that value proposition.

Advisors may continue to earn a lawyer’s wage, but the days of earning plaintiff wages are long gone. While specialists always fare better financially than generalists, it is important to note that even mature markets offer opportunities for the savvy. Unknown to most observers, today’s retirement plan opportunities for less than fully established advisors are at the participant level, not the plan level.

If may not seem like it on the surface, but when compared to other fiduciary law, ERISA is quite protective of plan sponsors. Indeed, the typical rectification for breach of fiduciary duty under ERISA is to make the affected plan whole, i.e., restore the plan to the position it would have been in without the fiduciary breach. This restoration is in stark contrast to state and commonwealth law, often providing for compensatory, punitive or treble damages. After analyzing the tradeoffs, certain plan sponsors would be wise to consider converting their non-ERISA 403(b) plans to ERISA plans to avoid state laws. Upon conversion, ERISA law would be applicable, including the Form 5500 filing.

Spending and saving habits have already changed and it’s hard to conclude that retirement plan participants will be able to maintain current contribution levels or that the stagflationary environment will generate a meaningful string of positive investment returns.

While the new disclosure rules may impact generalists disproportionately, advisors who are reluctant to disclose compensation, the services provided and the fiduciary status of those services are in the wrong business. Indeed, advisors must not only define their value, they must be skilled at articulating that value. Not surprisingly, advisors with relationships, value added services and the ability to communicate their value have a huge advantage.

To fuel non-sustainable spending, the nation’s leaders became hooked on debt. To fuel growth, the retirement plans industry became hooked on positive investment returns. Given the stagflationary outlook and the extended period of adjustment required to solve the debt problem, positive investment returns may not fuel future growth. Indeed, the only solution is to capture more assets and new higher margin buisness.

Unlike the mature corporate market for retirement plans, replacing individual multi-vendor products sold in the nonprofit market with institutional programs represents the greatest plan level opportunity in decades. With over seven million educators dependent on supplemental savings programs, more than $300 billion in K-12, Community Colleges and Public Higher Education assets are expected to come into play.

Advisors should not get caught up in the negative economic environment because non-traditional growth opportunities still exist and the TIAA-CREF Advisor Network is one of them. Unprecedented plan level opportunities also exist in the nonprofit market. Indeed, the Stagflation proof Advisor Network offers a path to growth, higher margins, added value and services that are highly regarded by retirement plan participants. Unlike plan level services, the higher margin participant advisory services are not viewed as a commodity.