Client Service September 13, 2016

PANC 2016: Industry Leaders in Conversation

Kicking off the second day of the PLANADVISER National Conference, two retirement plan thought leaders, with BlackRock and J.P. Morgan, discuss practical solutions to the most pressing plan issues.
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Speaking during the Industry Leaders in Conversation panel on the second day of the PLANADVISER National Conference, Sean Murray, managing director and head of adviser-sold and platform distribution for the U.S. Defined Contribution (DC) Group at BlackRock, pointed to three critically important numbers: 6.5, five and three.

“So, 6.5% is the return one has earned by being fully invested in a 60/40 portfolio in what I like to call the 401(k) time period, looking back roughly to the mid-1970s,” Murray explained. “And then 5% is what you would have gotten with this portfolio over the last 90 years. Finally, 3% is a number coming out of an actuarial survey—it’s what most investment expert actuaries think the next 20 years will return for a traditional 60/40.”

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Mike Miller, head of retirement distribution for U.S. funds management for J.P. Morgan Asset Management, agreed with those figures and concluded, “We simply have to force people to save more, given these numbers.”

For those reasons, the experts agreed, the use of automatic enrollment and automatic salary deferral escalation features probably represent the most powerful way for plan sponsors and advisers to support the real retirement outlook of participants.

“Related to this, asset-allocation solutions such as target-dates funds [TDFs] will remain hugely important,” Murray said. “Frankly, these solutions will have to get even better. Investors need different asset classes that will provide a broader range of return streams and opportunities. This is what the market is working to deliver right now.”

Both expert panelists encouraged advisers to “look for every source of alpha that you can, especially in this low-rate environment.” While this may result in more complexity behind the scenes, the panelists encouraged advisers to remember the wider trend of simplifying plan menus and factoring choice architecture considerations into their work.

NEXT: Lower costs across the board 

Several live-polling questions were fielded during the Industry Leaders in Conversation presentation, finding some impressive alignment of ideas around best practices among the advisers attending the PLANADVISER National Conference.

For example, the vast majority of advisers in the audience indicated they are working proactively to trim the investment menu, and that this work is being accepted and encouraged by plan sponsor clients. Another poll question found strong momentum across the board for pushing clients to lower-cost share classes and towards the consideration and use of collective investment trusts.

Miller noted that “we are definitely seeing a streamlining and real disruption of the traditional investment menu. We are clearly going back to trying to make it much easier for participants to make successful choices, and this is a great thing.”

Both experts agreed with the emerging them of utilizing a “three-tiered investment menu.”

“As a part of this, there is also a rethinking of how we label and present choices to plan participants,” Murray concluded. “At a very high level, we’re seeing a move away from a lineup of dozens of funds to a menu made up of the qualified default investment alternative [QDIA]—usually a target-date fund—along with a small second tier of white-labeled options, and then perhaps a third tier that is an open brokerage window.”

This three-tiered approach has been adopted by a variety of providers, they noted, and “most plan design consultants are selling this model today.”

In conclusion, Murray observed, “We have all seen the studies that show the performance gap between do-it-yourself investors and the people relying on a QDIA. This gap is going to keep growing and growing into the future as asset-allocation models continue to prove themselves. If the participant is not doing as well as the QDIA, why would you as a plan fiduciary allow him to continue down this path?” 

Client Service September 13, 2016

PANC 2016: Overcoming Plan Sponsor Hurdles

Knowing what retirement plan sponsors expect from their advisers and how to help them.
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Many winners and finalists for PLANSPONSOR’s Plan Sponsor of the Year awards cite help from great advisers for making their retirement plans great. But, some did not always have great advisers.

Speaking at the 2016 PLANADVISER National Conference in Orlando, Florida, Kimber Dills, vice president of human resources with Mental Health Cooperative, Inc. says the adviser they have now helped with a plan change that did not go over well. The company decided to auto escalate everyone in the 403(b) plan to 6% of salary deferral contributions and automatically enroll new employees at a 6% deferral rate.

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“There was a lot of push back, but we provided education and did one-on-ones with everyone concerned,” she said. “Now people are excited when they get their statement and see how much they are saving.”

Likewise, Judi Leccese, Retirement and non-qualified plans manager at Cabot Corporation, says her current adviser helped the company create a very detailed plan about implementing plan changes and was good about teaching the company about extremes and how far they could push things. The adviser did focus groups before the change, and after the change, got management to do town hall meetings with employees. The company had a leveraged employee stock ownership plan (ESOP) that was about to expire and decided not to continue with the ESOP. However, it increased the company match in the 401(k) plan and offered employer-paid financial wellness.

Discussing the problems with Mental Health Cooperative’s prior adviser, Dills said the adviser told participants that saving 2% to 4% of salary would be enough to get them to retirement security. The adviser did not focus on the plan. She said she found out the adviser was pushing supplemental products and sweeping participants out of the plan at age 55. “The plan and participants must be the focus of the adviser,” she told conference attendees.

Leccese added that an adviser should want to get to know the company and what is going on in the retirement plan. “By talking, listening and collaborating, [the adviser] helps decide what makes sense for the plan.”

NEXT: Other great adviser qualities and what plan sponsors want

Dills shared that when looking for a new adviser, she told prospects that the company’s employees needed a personal touch. One of the prospects came to meet with her and immediately opened his laptop to show her a software program he was going to test out on the cooperative’s employees. She immediately ended the meeting, telling him it was because he didn’t listen to what she wanted.

Luccese said Cabot did a very detailed request for proposals (RFP) when looking for a new provider that let prospects know they would have to come in and jump into the trenches with her. That is what her new provider did, becoming part of the Cabot team.

Advisers should also be able to work well with plan providers, both Dills and Luccess agreed. “I work with our advisers a lot, but also work directly with the vendor,” Dills said. “But they both come to education events and the vendor has a backup in case the adviser cannot attend.”

Luccese shared that Cabot has a retirement optimization team, consisting of the 401(k) provider, the non-qualified plan provider, the financial wellness adviser and the plan adviser. “At first we would do quarterly calls, but last year we had our first face-to-face meeting,” she said. “This year we are going to meet with 24 vendors, including life and health insurance providers.”

At the opening of the discussion, Alison Cooke Mintzer, editor-in-chief of PLANADVISER, polled attendees to gauge their knowledge about what plan sponsors want from advisers. The audience ranked “help with improving engagement and outcomes” as the most important deliverable from advisers, and ranked “advice on plan design and cost” second. However, Cooke Mintzer noted that PLANADVISER’S own survey of plan sponsors found the second most important deliverable is “selection and monitoring of investments.”

PLANADVISER also found plan sponsors want advisers to help employees take action, followed by provide financial wellness education. In addition, 85% of retirement plan committees said engaging participants is a concern, and recognizing retirement readiness is the biggest concern about participant behavior.

Advisers in attendance said the increased cost of health benefits was the biggest concern among their clients about the aging workforce, and the biggest concern with their retirement plan is fiduciary responsibility.

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