Resource Center / Magazine

Getting the Word Out

Judy Ward

Why employers still shy away from retirement-income products, and what advisers can do about it

p.38 Investment-Oriented
Josh Cochran
“I Have drunk the Kool-Aid,” says adviser John Pickett about believing in the use of retirement-income products as an in-plan option that effectively helps ensure participants’ savings for their lifetimes. “I do not have any doubt that they are going to be there in the future,” says Pickett, a Dallas-based Senior Vice President at RBC Wealth Management.

However, Pickett does not expect to sell his sponsor clients quickly on these products’ in-plan use. “We have been talking about this [primarily in-plan] investing philosophy for going on three years,” he says, adding that it takes a sustained effort to educate employers on all the options. “You have got to ‘drip’ on people awhile. It is not a matter of one session. It is a very deep subject and, once you start to look at these products, it becomes very confusing. It is going to take education and time.”

Eighty-three percent of sponsors express concern that employees will make poor decisions with their accounts at retirement, according to a March 2009 Principal Financial Group survey of its clients. Yet, just 40% offer education targeted to employees near retirement, Principal says. “I think that creates a tremendous opportunity for advisers to fill that gap,” says Chris Mayer, The Principal’s Vice President, Retirement and Investor Services.

Yet, in-plan use of retirement income products remains relatively scarce. “The whole industry has been talking about accumulation, not about income in retirement,” says Jamie Kalamarides, Senior Vice President of Retirement Solutions at Prudential Retirement. “Advisers need to shift their thinking to how to help their sponsors create the right outcomes—and the critical outcome is, does an individual have guaranteed income for life that he will not outlive?”

Advisers are part of the issue right now, says Martha Tejera, a provider search consultant at Seattle-based adviser Tejera & Associates, LLC. “Advisers need to get up to speed on what is out there,” she says. “The majority of advisers either do not know, or they think they know and they do not know.” Some advisers still avoid these products because of problems with annuities in the 1980s and early 1990s, unaware of improvements made since then, she says. However, they should learn more, she argues, because an adviser’s job goes beyond just keeping plan sponsor clients out of trouble—it also means helping make plans as effective as possible in ensuring that participants have adequate income in retirement.

Kalamarides argues that getting more knowledgeable about retirement-income products ultimately helps advisers, too. “A plan adviser often gets paid based on total plan assets. If the distribution default is in cash, the assets leave the plan, and the adviser is not always able to capture those assets as rollovers.” In-plan use of these products, he says, “encourages assets to stay in the plan.”
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