In Practice October 1, 2018

PANC 2018: Now What?

How retirement plan advisers need to function as business owners in order to grow their practices.

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SeaPort Group, Morgan Stanley Institutional Wealth Services, is a five-person team operating out of the Pacific Northwest whose focus is retirement plans, said Josh Ulmer, senior vice president, speaking on the “Now What?” panel at the 2018 PLANADVISER National Conference.

The practice serves 44 retirement plans with $1.2 billion in assets. “In the past 12 to 18 months, we have used our presence to try and expand,” Ulmer said.

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After working as a recordkeeping wholesaler for 15 years, a few months ago, Chris Miller joined aggregator Pensionmark Financial Group as managing director. The firm has 105 producers and $52 billion in assets under management (AUM), Miller said.

Ulmer said that he has come to realize that if a practice wants to grow, “you have to function as a business owner” as opposed to merely an adviser. “The skillset may not come naturally, but in order to compete at the highest level, I made sure I had a firm understanding of our deliverables,” he said.

Pensionmark focuses on “people, process and product,” Miller said. “With technological advances and increasing competition in the retirement planning industry, there is more focus on participants than ever,” he said.

Ulmer attributes SeaPort Group’s success to “understanding how to create scale with service providers and investment solutions.” With respect to achieving the former, the practice only works with specialist service providers and acts as a relationship manager for those organizations. With regard to making the most of investment solutions, SeaPort Group “studies data,” he said. Ulmer has come to the conclusion that “few active funds add value.” The firm has also streamlined investment solutions across its client base.

Another thing that has helped SeaPort Group grow, he continued, is that the “team has clearly defined roles.” But one thing that is not scaleable is one-on-one meetings with participants, he said.

Pensionmark offers efficiencies for its affiliates in terms of client service, technology and investments, Miller said. “We handle all back office functions.” It also uses Payroll 360, middleware that can analyze retirement plan data in order to help advisers serve sponsors and participants better, he said.

While Ulmer is the only adviser on the SeaPort team, he said he realizes he may need to change that in the future. “If I want to continue to grow, I need to create career paths for my team to become advisers, and to give them the ability to win and retain clients,” he said.

Asked what he thinks are the leading sources of disruption in the retirement planning industry, Miller said it is the prospect of open multiple employer plans (MEPs), managed accounts and social media. He said it is imperative for practices to embrace social media, as many Millennials and Gen Xers communicate through those channels, as opposed to e-mails.

It is also important for advisers to address people’s financial concerns outside of 401(k)s, Miller said. Ulmer agreed that advisers need “a more holistic deliverable,” as well as to address “retirement income and distribution planning.”

An additional disruption that Ulmer thinks is taking form is “client expectations on how we use data specific to their plans, to improve outcomes and make better decisions. In order to get at that data, we need to know each recordkeeper’s capabilities, and they vary. Digital and automation will also disrupt our industry,” he predicted.

Pensionmark has gone beyond recordkeeper data on plans and participants to create its own aggregation tool, Miller said.

Asked what the biggest challenges in the next 12 to 18 months will be, Miller said one is “navigating all of the new technology products from the recordkeepers” and another is “building efficiencies to make practices better.”

Ulmer said he sees three challenges, with the first being the ability of retirement plan advisers to articulate how they truly differentiate themselves from their competitors. A second will be “demonstrating your value, actually showing sponsors how you impacted plans.” 

Thirdly, Ulmer expects equity market volatility could return over the next 36 months. With the bull market having lasted a decade, retirement plan advisers will find themselves working with “a whole generation that has not seen volatility,” he said. “This will be a great way to differentiate yourselves.”

In Practice October 1, 2018

PANC 2018: Transformation in the Small Business Market

Significant transformation is happening in the small business retirement plan market; what does this mean for the fiduciary adviser community?

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Presenting to the 2018 PLANADVISER National Conference in Orlando, David Musto, president of Ascensus, framed some of the key challenges facing Americans as they pursue retirement security by telling the stories of his uncle and father.

Musto’s uncle Anthony lived what many would think of as the American dream, at least in part. He went from humble and modest means to growing and transforming several small businesses. Starting his career as a truck driver for Kraft, he eventually moved into a food brokerage business, afterward creating his own import and marketing businesses.

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“Anthony’s story shows the drive of the small business person,” Muston suggested. “But his later life shows the other side of the picture. He worked for himself his whole life, and as a result he lacked a benefits department and a focus on long-term planning. When he had health issues later in life, it was not an enjoyable retirement experience, to say the least. Especially in the last few years of his life. He died with relatively little even after such a dynamic and successful career.”

Musto compared this story with his father—Anthony’s brother—who worked for Bell Labs for 36 years, with both defined contribution (DC) plan and defined benefit (DB) plan savings opportunities. Today, Musto’s father and mother are living a happy and secure retirement.

“It shows the corporate retirement plan system is powerful, representing one of the chief ways for Americans to create lasting lifetime wealth,” Musto said.

According to Musto, small businesses cover roughly 48% of the U.S. work force, and they account for something like 63% of new job creation. At the same time, 81% of small businesses have no employees outside the owner’s immediate family, while 29% are minority owned, and 45% are owned at least partially by women.

“Many of these owners resemble my uncle Anthony,” Musto said. “More than half, 51%, are 50 years or older.”

Musto noted that many of the same challenges facing the small business community when it comes to retirement planning also face workers in the “gig economy,” which represents nearly 21 million people in the U.S.

“Like employees of small businesses, unfortunately, gig workers make significantly less on an annual basis and have very little access to workplace planning,” Musto warned. “And take note, gig workers are not just young people. Thirty-seven percent of the gig economy are workers who are 55 or older, and increasingly, this group also includes higher skill works, such as lawyers and engineers.”

Musto appealed to PANC attendees to take up the task of helping these under-served groups. There may be some surprisingly big opportunities out there, he added, pointing to the examples of Lyft and Urber starting to offer payroll deductions for individual retirement accounts. 

“They’re even offering financial planning,” Musto said.

Musto noted how the advantages that large employers have in the DC space—the professionalization of management and the economies of scale—can be replicated for small businesses in a variety of ways. The most obvious pathway is open multiple employer plans (MEPs) and the government administered IRA or marketplace approaches being created already in various states.

“Clearly, small companies have the best interest in mind for their workers’ retirement, but they face serious obstacles,” Musto said. “Chiefly, these are cost, lack of staff, fiduciary concerns, and volatility of earnings.”

Musto concluded by voicing optimism about the increased collaboration between third-party administrators (TPAs), recordkeepers and fiduciary advisers.

“We see significant growth in use of TPAs and fiduciary advisory services going together,” Musto said. “By quarterbacking providers as a discretionary fiduciary, this is one way the adviser can support small clients as they track and manage their myriad responsibilities. There is tremendous potential here for efficiency, even as small business owners are very cautious about fiduciary responsibilities. Working with a TPA, the adviser as at 3(21) or 3(38), can efficiently deliver a complete fiduciary solution.”

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