Business at a Glance as of 12/31/22

• Plan assets under advisement: $20.9 billion
• Median plan size (in assets): $239 million
• Plans under administration: 63
• Total participants served: 236,372

PLANADVISER: Tell us about your practice and how you got into advising retirement plans.

Jim Detterick: We run a large, dynamic financial advisory team that includes more than 55 financial professionals. Many of the team’s professionals are focused on our corporate relationships, where we aim to serve multiple financial needs for both plan sponsors and their employees (participants). When we started our business more than 25 years ago, we focused myopically on 401(k) plans. Over time, and as our clients’ needs grew or we won new client mandates, we expanded across the defined contribution spectrum and now consult to 403(b), 401(a) and 457 plans. We also help plan sponsors implement and maintain nonqualified deferred compensation plans (top hat, SERPs, deferred compensation plans), defined benefit plans (traditional annuity and cash balance), equity compensation plans (RSU, PSU, SOP, etc.) and financial wellness programs across all these different plan types to engage the participant in a comprehensive fashion.

Today, our team primarily focuses on the large-market space, as most of our corporate clients are Fortune 1000-level companies with individual plan assets greater than $250 million. Furthermore, our corporate client base is quite diverse, spanning almost every industry or sector. For example, we serve alternative asset managers, law firms, for-profit healthcare organizations, retail companies, energy companies, lodging and leisure organizations and government / municipal entities.

Candidly, I did not enter the fiduciary investment consulting space on purpose. Like most college graduates, I was unaware that this space existed when I graduated. My goal upon graduation and entering the workforce was to be retained by a highly reputable organization where I could learn, grow and ultimately find what I wanted to do for the rest of my life.

As luck would have it, one of the mega-financial services firms took a chance on me more than 25 years ago, when I was hired to work in the call center of their growing and thriving retirement plan recordkeeping business. After a few fast promotions and getting to experience different aspects of the business, I had developed a very deep interest in a long-term career in the executive compensation and benefit plan space. However, as an undergraduate English major, I craved a deeper academic perspective in the finance and investment world and decided to go back to school to obtain my master’s in business administration (MBA) by attending classes on nights and weekends while remaining employed at my first firm.

In those early years, I recognized that I felt the highest levels of self-fulfillment while working directly with plan sponsors and advising solutions they appreciated. I felt immense self-gratification when a plan sponsor listened to my counsel and implemented my advice. It was at this time I decided to deepen my career by moving to the advisory side of the firm and becoming a retirement plan-focused adviser.

Roughly a decade later, I made my one and only firm change and was recruited to what is now Graystone Consulting at Morgan Stanley (at the time it was the institutional consulting business within Smith Barney). I had resisted the recruiting calls for several years but ultimately made the jump after my current firm hesitated to acknowledge fiduciary status for its advisory business in the mid 2000s, while Graystone’s predecessor had been acknowledging fiduciary status for decades. In addition to acknowledging fiduciary status, I concluded Morgan Stanley’s ongoing commitment to the corporate retirement space to be abundant and unwavering.

For the past 16 years, I have worked to grow my practice and can proudly state that I lead one of the largest teams at Morgan Stanley (by way of assets under management, size of retirement plan consulting practice and employee headcount) and run the firm’s largest ERISA-focused retirement practice. Additionally, I co-chair the internal Graystone Advisory Board, and my voice and opinions help shape Graystone Consulting’s future strategic priorities and endeavors in the corporate retirement business.

PLANADVISER: As a retirement plan adviser, what do you take the most pride in?

Detterick: Our team takes pride in our ability to meaningfully support plan sponsors and plan participants at every point in their journeys to achieve retirement readiness. We understand that a participant’s financial picture is not merely a snapshot at any given point in time but more akin to a constantly rewritten book memorializing their journey towards their personalized goals, needs and desires. Supporting participants along this journey requires individual attention from a financial professional, with advice and insights tailored to the needs of each specific participant.

The best way to illustrate our commitment to supporting our clients’ participants during their journeys to retirement readiness is the specific case of one of our team’s clients, a large municipal fire and rescue organization in the Mountain West. For this client, we offer all of their participants (more than 800 in total) one-on-one access to CFPs on our team for a comprehensive financial planning exercise conducted once per year.

In addition to directly working with plan participants, we believe another impactful way to meaningfully enhance participants’ retirement readiness outcomes is to work with plan sponsors to create an optimal plan design and investment menu, and one that is customized to the unique characteristics of the specific plan sponsor entity and its participants. Our team takes tremendous pride when a plan sponsor listens to our advice and takes meaningful steps toward enhancing their plan design or improving their investment lineup. For example, our team has recommended and helped implement the following actions:

Added after-tax contributions up to the Section 415 limit to allow participants that desire to save more the ability to do so.

At the same time, we advise these plan sponsors to introduce in-plan Roth conversions so that this after-tax money will not only grow tax-free, but can also be distributed tax-free. Assuming this enhancement will not cause any nondiscrimination testing failures, the introduction of after-tax contributions has proven to be an excellent way to increase the level of participant savings for many of our clients.

Introduced or increased automatic escalation deferral rates.

There have been several instances in which our team was hired as the new fiduciary investment consultant to a defined contribution plan, and the plan sponsor had not added auto-escalation, or had added it but capped the auto-escalation deferral rate in the low-to-mid single digits. Our team immediately advised these plan sponsors to either implement this feature or increase the cap to between 10% and 14%. This simple change has improved retirement savings rates for tens of thousands of participants across our team’s client base and will undoubtedly improve their retirement readiness.

Reduced investment menu overlap and simplified investment menus in order to minimize participant confusion.

Participant confusion or inertia is one of the key reasons some employees avoid contributing to their defined contribution plan. Graystone has seen plan lineups with more than 50 investment options, including multiple investment options in one Morningstar-style box. This setup often creates confusion for an investment professional, never mind a participant with a more limited investment acumen. In these instances, Graystone works with the plan sponsor to eliminate investment menu redundancy in the spirit of creating a lessconfusing, best-in-class investment menu. These actions, over time, have led to improved employee participation rates.

Finally, and in addition to our work around improving retirement outcomes, we are proud to state that we provide holistic, conflict-free advice. Accordingly, Graystone does NOT:

• Charge investment managers for inclusion in its manager search database;
• Introduce managers affiliated with Morgan Stanley to clients unless specifically requested (guaranteed by contract);
• Accept referral fees or any other compensation from managers as a result of introductions;
• Offer consulting services, including performance measurement, to investment management firms;
• Purchase products or services from investment management firms; or
• Compel investment managers to trade through Morgan Stanley’s registered broker/dealer.

Our team receives compensation solely from our role as an investment consultant. We believe that this model allows us to best serve the fiduciary interests of our clients and their participants.

PLANADVISER: What challenges do you think the retirement plan industry faces and what role do you have in addressing and confronting those challenges?

Detterick: The retirement plan industry is ever evolving, and as such, so are the challenges facing plan sponsors and their participants.

We believe the biggest challenge facing the retirement industry is getting participants to take a more proactive role in planning for their retirement. We find that the average participant rarely makes investment or deferral changes; in fact, most participants only log into their accounts on the recordkeeper website once or twice per year. This problem of participant-level inertia is troubling, and the retirement industry has unfortunately been unable to come up with a one-size-fits-all, “silver bullet” strategy that can increase participant engagement meaningfully and reliably.

While we do not profess to have the singular solution to this problem, we remain very active with our plan sponsor clients in combating participant inertia. We do this in several ways, including:

• Working with our clients and their recordkeeping partners to craft participant communications that encourage participants to take a more active approach to managing their retirement plan accounts;
• Recommending plan design features such as automatic enrollment and automatic escalation, which ensure that participants are maximizing their level of savings even if they choose to continue to take a hands-off approach; and
• Hosting financial wellness seminars at which members of our team will make on-site visits to preferred plan sponsor locations to answer basic financial and retirement questions in a group setting or on a one-on-one basis.

While we believe participant inertia is the most challenging dilemma facing the retirement plan industry, we recognize there are other challenges, secondary in nature, the industry must contend with. These challenges include:

• The regulatory environment is often complex and difficult to navigate. For example, the DOL’s rules around ESG investment strategies and their potential inclusion in defined contribution plan lineups have changed several times over the course of the last few presidential administrations. This “flip-flopping” makes it difficult for plan advisers to properly advise and for plan sponsors to act in accordance with the rules and regulations.
• Another example of the overly complex regulatory environment was the passage of the original SECURE Act and the SECURE 2.0 Act of 2022. Both pieces of legislation were extremely nuanced and all-encompassing. In fact, SECURE 2.0 contained a multitude of provisions which require additional regulatory clarity before recordkeepers can work toward practical implementation. Our team tries to stay abreast of these changes and works tirelessly with our plan sponsor clients to ensure that the appropriate decisions are made in the proper timeframe to ensure compliance with any new rules or requirements.
• Participant litigation is another challenge facing retirement plans, particularly defined contribution plans. Our team realizes the best defense against participant litigation is to ensure that our clients always offer a very competitive, low-cost retirement plan—encompassing investments, recordkeeping, consulting and other services. By always thinking about the participant, we can not only improve retirement outcomes, but we can also take steps to mitigate the chances of potential litigation, a benefit to all who are involved.

Finally, the retirement plan industry has always struggled to help participants understand the likely or potential monthly income that can be derived from their defined contribution balance in retirement. The first SECURE Act mandated that recordkeepers begin to provide participants with a “lifetime income” illustration on their account statements. The goal of this illustration is to shift the participant’s mindset from the accumulation stage of their retirement journey to the decumulation stage. Rather than being forced to think solely in terms of their total account balance at retirement, participants were shown an estimate of the monthly income the balance would generate (similar to the monthly income provided by an annuity). Unfortunately, the mandated calculation has some shortcomings. It does not assume additional retirement plan contributions, nor does it assume any growth in assets based on the participant’s current and future asset allocation. Therefore, it is likely that the estimate on participant statements grossly underestimates one’s annuitized potential. While our team cannot control these calculations, we have worked tirelessly with each of our clients to ensure they understood the intent of this calculation. Additionally, our team has attempted to raise participant awareness of what this figure represents during participant seminars and one-on-one meetings.

PLANADVISER: Why do you feel it is important to work individually with plan participants?

Detterick: In a survey of more than 1,000 full-time employees of mid- to large-sized U.S. companies, conducted with the support of Morgan Stanley, three out of four participants responded that financial stress distracts them at work. More than half of those surveyed whose households earn more than $100,000 annually noted that their finances cause them stress. Our survey noted that participants are in most need of help with building wealth, planning for their families’ financial futures, building emergency savings, choosing and monitoring investments, managing bills and spending, improving credit and managing debt. 49% of participants surveyed would like the ability to speak with a subject-matter expert when making decisions.

These pain points require individual attention from a financial professional, with advice and insights tailored to the needs of each specific participant. A participant’s financial picture is not a snapshot in time, but a journey toward their personalized goals and objectives. Plan sponsors’ recognition of participants’ financial stress has resulted in more involvement by our team in either a formal financial wellness engagement or in ad-hoc financial education and retirement savings participant meetings. Through these meetings, we have been able to help place many of our clients’ employees on a more secure and sound path toward retirement.

One example of our dedication to the participant is the work we do with a fire and rescue municipal organization in Colorado, where we provide personalized financial planning services for more than 800 participants. Not only do we lead group meetings and events, we also conduct one-on-one meetings and run full financial plans for hundreds of employees per year. The financial plans not only consider retirement, but they also consider simple budgeting strategies, saving for children’s college tuition, weddings and other big-ticket purchases or events. Having a clear and concise financial plan in place has eased the daily financial stress of so many of this client’s employees.

This type of programming not only benefits participants; it also benefits our plan sponsor clients. More than 60% of surveyed participants noted that they would be more likely to stay at a job which provides them with a useful financial wellness program. Retaining a competitive workforce is undoubtedly key to long-term organizational success.

PLANADVISER: What are the biggest challenges that plan participants face today and how are you helping to address them?

Detterick: The biggest challenge today’s corporate retirement savers face is the shift from defined benefit plans to defined contribution plans. Said differently, the burden of retirement planning has shifted from the employer to the employee. Most corporate employers have either exited or are in the process of exiting the traditional annuity defined benefit plan space. Taking on the responsibility of a traditional defined benefit plan is too costly and risky for the employer, especially with today’s volatile markets.

The logical result is that it is imperative for consultants and their plan sponsor clients to educate and encourage employees to take full responsibility for their retirement journey. Our team does this through creative communications and participant engagement strategies, group meetings, one-on-one meetings and financial planning. We also work directly with our plan sponsor clients to ensure their retirement offering is competitive and encourages participation.