In Practice October 30, 2012

Ethics for Retirement Plan Professionals

When considering ethical behavior, the question is not “What would you do?”—it’s “What should you do?”

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Speaking at the American Society of Pension Professionals & Actuaries (ASPPA) Annual Conference, Dr. Bruce Weinstein, contributor to Bloomberg Businessweek and author of “Ethical Intelligence,” said there are five life principles to follow to behave ethically. The first principle is “Do no harm.” A plan sponsor can harm participants by sharing confidential information or lying to a participant about a mistake made in his account. A financial adviser can harm clients by consciously overcharging them or recommending an action that is not appropriate for their plans.  

Weinstein’s second principle is “Make things better.” A plan adviser helping a sponsor that is struggling with loan administration is making things better, as is a plan sponsor that admits it used the wrong compensation to calculate a participant’s benefit and corrects the mistake.  

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Weinstein said ethically intelligent people also take time every day to make things better for themselves, such as eating right or exercising. As an example, he said staying home from work to rest when you have the flu is not only taking care of yourself, but it is good for business because you keep from making others sick. Plus, you may not perform your best if you are sick or on medication.

The third principle Weinstein shared is “Respect others.” This means keeping confidential information confidential, telling the truth and keeping promises made. “Don’t make promises you can’t keep, and make promises you intend to keep,” Weinstein said.  

“Be fair” is the fourth principle. According to Weinstein, time management is ethical behavior and can show how fair a plan sponsor or financial adviser is with participants or clients. How one disciplines someone can also show fairness. Weinstein suggested offering constructive criticism using a “praise sandwich”—begin with something complimentary, state the criticism in a gentle or even positive way, and end with an affirmation, e.g., “You are always so diligent, I knew you would want to correct this.”  

Finally, Weinstein said the fifth life principle that leads to ethical behavior is “Care.” Treat others with care, kindness and even love, he said. He added that one should show sincere appreciation for others; it takes little effort and causes both the giver and receiver to feel better.  

Weinstein noted that clients give their business to those they trust, and the best way to earn and maintain that trust is through the five principles. Plan sponsors also want participants to trust them.  Living by the five principles is “not only the right thing to do, it’s the smart thing to do,” Weinstein concluded.

Data & Research October 30, 2012

Health Care Costs Are Key Topic

Discussing health care costs in retirement is new for many advisers, and few say they have the knowledge and resources to do it well.
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Four in five advisers say they know being capable of having these discussions will help retain clients, according to a Nationwide Financial survey. “There are not enough advisers right now talking about future health care costs with their clients, but more will soon learn how—or risk losing customers to an adviser who can,” said John Carter, president of distribution and sales for Nationwide Financial.

Fifty-seven percent of advisers say their clients are interested in talking about their health care costs in retirement, the survey found. More than half of advisers admit it is challenging to discuss information about their clients’ health, and only 30% say they are confident in their ability to estimate their clients' health care costs in retirement.

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Almost half (43%) of advisers say their clients show little interest in discussing the subject; three in four advisers say many of their clients don’t seem to realize how crucial it is to plan for health care costs in retirement and, on average, more than half don’t have a plan to pay for those costs. More than half of advisers say they remind their uninterested clients of the importance of the discussion before switching topics, and 37% say they urge them to have the discussion before switching topics. Only 4% insist on discussing it.

(Cont’d…)

A future challenge for today's retirees is paying for out-of-pocket health care costs. These costs for the average 65-year-old couple can reach $240,000 over 20 years of retirement. People living to age 65 have a 70% chance of needing some type of long-term care in their lifetime. The average cost per year for a nursing home is projected to be $265,000 by 2030, not including a private room.

One problem keeping many advisers from having this discussion is that 43% say they do not have the proper solutions or tools to estimate health care costs in retirement.

“Currently, many advisers will use their clients’ assumptions of their future health care costs to develop a retirement income plan,” said Kevin McGarry, director of Nationwide Financials’ retirement income strategies. “However, four in five clients underestimate their health care costs.”

The 2012 Financial Advisors and Health Care Costs Study was conducted online within the U.S. by Harris Interactive on behalf of Nationwide between July 18 and July 25. The respondents comprised a representative sample of 501 financial advisers with at least 50% of their clients having $250,000 or more in total investable assets.

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