In a rapidly changing and uncertain landscape, is your plan advisor checking the right boxes?
Volatility and Uncertainty
2016 was an incredibly volatile year starting with both the Dow and S&P 500 down 7% to 10% in the beginning and ending the year at all-time highs. I was presenting to a group of clients at a client appreciation event in February and remember the Dow being down about 8% and the S&P 500 being down about 10% and wondering what the heck was going on, and yet in late December of 2016, the Dow was just 25 points away from hitting 20,000, an all-time high! All that volatility has created a backdrop of resounding uncertainty as we begin 2017.
To add to this uncertainty, the current media hype, broadly published articles on social media feeds, news sites and various other sources, have brought 401(k)s into the spotlight and caused participants to really question their group plans. Somehow, despite the mass of available information, employees still don’t really feel knowledgeable about their investments or satisfied with their plan.
Employees and their Plan
Fisher Investments commissioned KRC Research to survey one thousand 401(k) plan participants to measure how well their retirement plans work for them. The survey found that two-thirds of plan participants are not satisfied with their employer sponsored 401(k) retirement plan. Half of the participants said that the provider does not offer education and support and two-thirds said that it is hard to pick the investments that will get them to their retirement goal. The survey goes on to say that plan participants recognize the value of having a 401(k) offered to them and the majority believe that employers that offer such a plan are better places to work.1
Another way of putting it is, your employees see value in the 401(k) plan and appreciate it, but they don’t feel equipped or empowered to use it confidently. They care about their retirement, but don’t have a clear plan of what they need to do to meet their goals, and they don’t fully understand the investment options and resulting volatility they see in their accounts.
What Can Your Advisor Do To Help?
Partnering with a quality 401(k) plan advisor can help increase participant knowledge and satisfaction with their retirement plan. With that in mind, here is my take on three vital things your 401(k) plan advisor should be doing for you in 2017.
Be a Trusted and Valued Resource
In my twenty plus years of experience, I have found that participants are generally unfamiliar with the resources available through the investment provider, and as a result do not fully understand the options or trust the information within their retirement plan.
The reality is all advisors talk about providing “excellent service” and although sometimes provided, the core problem is that often “excellent service” consists of quality materials on the web just waiting for participants to click a link somewhere, but in reality, they don’t even know how to find it. Sometimes the biggest service that an advisor can provide plan sponsors and participants is just being available. Answering the phone, or returning a voicemail or email, getting out in the field and meeting with participants, talking to them and getting to know them, all bring a familiarity between the advisor and plan participants. It is in this type of environment that the advisor can very quickly establish themselves as a reachable “go-to” person for information on the plan, which can take a load off you and your HR department.
The problem is that this personal, connected approach takes a huge amount of time and a commitment from both the employer and the advisor, time which many choose not to give. Larger retirement plans with thousands of employees spread across a vast geographical area could probably not provide this type of personalized service, but small, mid-size and even large employers with thousands of employees located in the same city, or geographic area, could easily accomplish this level of service with the right advisor partnership. Good examples of these larger but centrally geographic groups include cities, school districts and counties that currently struggle to educate and inform their participants on the investment portion of their retirement programs. I believe they could dramatically enhance the value to the participant by adding a quality educational component to their benefit package.
I doubt many would argue about the importance of education for retirement plan participants, but having an advisor who is a trusted and valued resource is taking it to the next level. You cannot simply hold annual enrollment meetings and expect to truly obtain that status. It’s about connecting. To effectively become a trusted and valued resource and really meet participant’s educational needs, your advisor needs to develop relationships and that only comes from helping people gain clarity on the specific issues that are important to them.
Make it Easy to Understand
There are so many moving parts to retirement that it’s very easy for participants to get lost. Whether it’s employer matching, contribution limits, eligibility, distribution options, loan provisions, Roth accounts, Traditional accounts, there are so many moving parts involved before you even get to what matters most to an employee, “how should I invest my money so I can meet my retirement goals?”
If an advisor has positioned themselves well as an educator and a trusted and valued resource, they should be able to have those conversations very easily with participants in your retirement plan. What really sets apart the simple and the complex is having the right tools. A great advisor should be able to quickly illustrate the following:
1. How much income would your retirement account provide if you retired today?
2. How much could your retirement account provide if you retired at a given age?
3. What lump sum would you need to replace your income?
4. What changes do you need to make to what you’re currently doing to meet your goals? What would it look like if you changed one or all of the following:
a. retirement age
b. investment risk tolerance
c. your contribution amount
d. amount of income distributed in retirement
Participants are not financial experts and although they are not stupid, the more an advisor can help them simply understand the various options they have and what they need to do to meet their financial goals, the better they will feel about their future and the more confident they will be in their plan even with market volatility.
Be Available and Connected
As a plan sponsor, sometimes it feels like you are a long ways from understanding all the ins and outs of your retirement plan. If you in your position as the plan sponsor feel that way, imagine how much more removed your participants feel. Sometimes the cause can be a disconnected advisor, or a lack of education. Sometimes as a plan sponsor, you just haven’t had the time or desire to get to the core of it. The reality is, your group plan is a vital benefit to your company, and it is a vital tool to help your employees prepare for retirement. Employees value and rely on the group plan and the Department of Labor is keeping a very close eye on it, so it is essential for you to be on top of your 401(k).
In my years of experience I have often seen advisors set up a plan and then have nothing further to do with it. All the work gets pushed off to the vendor, TPA or the employer’s HR department. Quality advisors tend to be focused on serving their plan sponsors and participants. They work hard at connecting, engaging, educating and helping both plan sponsors and their participants move toward successfully meeting their retirement goals. Good advisors are not afraid to get their hands dirty, and they are willing to serve in the trenches.
When it’s all said and done, having the right advisor for your 401(k) plan can be the difference between a successful plan with satisfied, knowledgeable employees, and disgruntled, misinformed employees. As 2017 gets rolling, may your advisor educate, simplify and serve your business and employees.
About the Author
Martin McCann is president of McCann Asset Management and is a practicing financial advisor in Fresno, California. He focuses on retirement plans and wealth management.
Martin can be reached at 559-400-6520 or Martin@McCannAM.com.
Visit the McCann Asset Management web site at www.McCannAM.com.
1. Paraphrased extract from: http://www.thinkadvisor.com/2016/12/27/3-wishes-401k-participants-want-advisors-to-grant?page_all=1&slreturn=1484090820