Practice Management April 6, 2020

First Time Advising in a Bear Market?

It’s easy to tell clients their accounts have grown by leaps and bounds, but helping them calmly navigate a severe and sustained market downturn is another matter.
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Art by Claudi Kessels


Veteran retirement plan advisers have a wealth of recommendations for their younger counterparts on how they should be advising plan sponsors and participants during the coronavirus pandemic and the associated market downturn.

David Flores Wilson, founder of Planning to Wealth, says the first thing advisers should realize is that over the past 90 years, there have been bear markets every six to eight years. That means knowing how to help clients navigate market downturns is an essential and enduring skill for any successful adviser. Additionally, it means advisers must find ways to remain calm themselves during periods of market and client stress.

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“It is normal from a market perspective—but extraordinary in terms of what we are all going through,” Flores Wilson says. “We don’t know how long this is going to go on. So, it is important to be empathetic about people’s situations. Don’t just focus on their retirement planning. Many people will be more concerned right now with their shorter term income projection and budgets.”

Given the uncertainty associated with the coronavirus pandemic, Flores Wilson says, there are various practical and grounded questions that advisers can help their clients focus on.

“Ask if they have an emergency fund,” he suggests. “How are they set for covering expenses for the next two to six months? Are they able to get relief from the CARES [Coronavirus Aid, Relief and Economic Security] Act? If they are stable financially, this may actually be a good buying opportunity.”

Flores Wilson observes that, in addition to the CARES Act, there will likely be other stimulus bills coming out of Washington in the weeks and months ahead.

“The advice people will need will be changing from week to week,” he adds.

Demonstrating Leadership

John Anderson, managing director and head of practice management solutions at SEI, says he can remember the crashes of 1987, 2001 and 2008. He says one lesson he shares with younger advisers is that they can play a powerful role in helping their clients “tamp down their emotional responses” to the current pullback in the market. Given their trusted position of authority, advisers may be surprised to learn just how much they can do to assuage clients’ fears and concerns, he says.

“The right response is to be able to show leadership,” Anderson says. “To help make this a reality, we hold daily check-in calls with all of our advisers, to show our junior advisers we are all working together. Hopefully, advisers will have already helped participants build diversified portfolios that can hold up to and recover from the volatility. It is important to help clients see the big picture. That should help alleviate some of their stress.”

Julie Genjac, managing director, applied insights, at Hartford Funds, agrees that the most important role retirement plan advisers can perform right now is to show leadership. Participants’ responses “all start with the adviser,” Genjac says.

“Be the leader your clients want you to be,” she says. “Be proactive. Check in with clients to make sure they are doing OK. Have an opinion about the markets, the future, the state of the union, the economy. Collect your thoughts and articulate your story.”

Of course, the client’s financial plan should be the cornerstone of the conversation, Genjac recommends.

A Tough Job 

Marty Reid, an independent financial consultant whose broker/dealer (B/D) is Cetera, warns novice advisers that keeping clients’ perspective on the long term will not be easy. This is especially true with clients who are near retirement or who have recently retired.

“You have to make them understand that the worst thing to do right now would be to cash out unnecessarily,” Reid says. “Left on their own, they may make short-term, rash decisions that could negatively impact their long-term outlook. Help them manage their emotional response to the market.”

Reid says one effective lesson is to show investors how even backing away from the market for a short time can have seriously negative effects on long-term returns. A commonly cited statistic to demonstrate this point is that six of the best 10 days for the equity markets during the January 2000 to December 2019 time period occurred within two weeks of the 10 worst days. Case in point, the best day of 2015 (August 26) came only two days after the worst day (August 24).

Reid adds that those with a higher risk tolerance might see this as a buying opportunity.

“Now is a wonderful time to review financial plans with clients,” he says. “They will derive comfort from knowing that their adviser is being proactive.”

Practice Management April 1, 2020

Staying Audit Ready in a Turbulent Time

As one might expect, what the Department of Labor (DOL) and the Securities and Exchange Commission (SEC) are particularly interested in is how advisers are paid.
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Art by Jennifer Xiao


Retirement plan advisers need to be prepared in a number of ways for audits by the Securities and Exchange Commission (SEC), the Department of Labor (DOL) and the Financial Industry Regulatory Authority (FINRA), industry experts say.

The DOL, in particular, has increased its audits of advisers, says David Kaleda, a principal with Groom Law Group, Chartered. While the DOL doesn’t supply exact statistics about its enforcement activities and the relative number of reviews it performs of plan sponsors, advisers or service providers, the anecdotal evidence is convincing.

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“I have been working in this industry since 1987, and 10 to 15 years ago, almost all of the DOL’s investigations into retirement plans were focused on plan sponsor fiduciaries,” Kaleda says. “It was pretty rare that advisers or service providers were the subject of their inquiries. Today, we see about half of their inquiries are into advisers.”

Advisers in Focus

The reason for this, Kaleda says, is the DOL realizes it can impact and protect more plans by scrutinizing advisers, given their influence, compared with individually looking into single retirement plans. The DOL and the SEC are particularly interested in how advisers are paid, Kaleda says.

“They want to know if the compensation is level, if a firm obtains revenue sharing or if it collects service fees from mutual funds,” Kaleda observes. “They want to know if those fees comply with ERISA [the Employee Retirement Income Security Act] or if there are any prohibited transactions. They will also check to see if the adviser is recommending proprietary products from an affiliate.”

On top of this, the SEC and DOL want to know if the adviser is cross trading, i.e. trading from one client account to another in situations where they are the fiduciary to both of those accounts, Kaleda says. Advisers should also be aware that the DOL shares information it gleans with a number of other government agencies, including the SEC, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board and the Office of Thrift Supervision in the Treasury Department.

Compliance Amid the Coronavirus Pandemic

Brian Tiemann, a partner with McDermott Will & Emery, says that in light of the coronavirus pandemic, government agencies will also look to see if retirement plan advisory practices have adequate business continuity plans. Additionally, cybersecurity and protection of sensitive participation data have become top of mind, Tiemann says.

“They want to see how advisers manage the transfer of data to and from venders, how they are training their employees and what steps they would take in the event of a breach,” he says.

For those advisers whose practices are hybrid, whereby they are serving both retirement plans and individual investors as wealth managers, Robert Klapprodt, corporate strategy officer at Vestmark, says they need to comply with the SEC’s Regulation Best Interest (Reg BI), which goes into effect June 30.

“And while fee benchmarking is not mandated by any regulatory body, under ERISA, retirement plan fiduciaries are required to make sure their fees are reasonable, so advisers need to be able to defend their fees when the auditors come in,” he says.

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