In Practice October 22, 2018

Advisers Optimistic About Future Prospects

They are also offering a broader range of products, a survey by LIMRA and EY found.

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Thanks to significant practice growth during the last few years, advisers feel empowered and optimistic about their future prospects, according to a new report, “Harnessing Growth: The LIMRA-EY Experienced Financial Advisor Study,” based on an online survey of nearly 1,500 advisers.

Eighty percent say that they have experienced significant gains in gross income in the past few years. While many said the growth was due to market gains, 50% said it was due to growth in the number of clients they serve. As a whole, advisers say their client base grew 22% in the past two years.

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This growth has also increased advisers’ expectations for service and support from insurers and other ecosystem partners.

The changing business mix—i.e. investment products, life insurance, annuities, advisory-related fees and other insurance products—means more types of practices now offer a broader range of products and services and compete more intensely for similar customers.

Nearly 80% of advisers also see the use of digital tools as essential for marketing, prospecting and client communications. Today, 43% of advisers use social media to prospect for new clients. Fifty percent plan to increase their use of texting, virtual meetings and social media for prospecting and client engagement. Furthermore, they expect their providers to interact with them via digital channels.

More advisory practices have turned to teaming and other practice support models to keep up with complex customer needs. To this end, they have entered into formal or informal arrangements with practice support professionals, such as product specialists, legal and tax professionals and wholesalers. More than 40% report that they are part of a formal teaming arrangement with fellow sales professionals within or outside of their agency or firm.

Seventy percent of advisers also expect that fiduciary requirements will drive up compliance costs and impact the products they sell. Eighty-six percent expect compliance requirements will increase.

They also expect investment firms and insurers to offer innovative products and best-in-class service and support, to help them grow their practices. This offers an opportunity for carriers and other financial service firms to differentiate in an increasingly commoditized environment. Organizations must commit to a strategy that extends their value proposition beyond product offerings and solidifies relationships with the highest value advisers.

Compliance October 22, 2018

DOL Seeks to Expand Access to MEPs and ‘Association Retirement Plans’

These plans allow small businesses to join together to offer defined contribution retirement savings benefits.

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Under the direction of President Trump, the Department of Labor (DOL) is seeking to make it easier for small businesses to form association retirement plans, which permit them to join together to offer defined contribution (DC) plans within a single administrative framework.

To this end, the DOL has published a set of proposed regulations under Title 29 of the Code of Federal Regulations to expand access to retirement saving options by clarifying the circumstances under which an employer group, association, or professional employer organization (PEO) may sponsor a workplace retirement plan. In particular, the proposed regulation clarifies that employer groups or associations and PEOs can, when satisfying certain criteria, constitute “employers” within the meaning of Section 3(5) of the Employee Retirement Income Security Act (ERISA) for purposes of establishing or maintaining an individual account “employee pension benefit plan” within the meaning of ERISA Section 3(2).

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As an “employer,” a group or association can sponsor a defined contribution retirement plan for its members, as can a PEO sponsor a plan for client employers (collectively referred to as “MEPs”). The proposed regulation would allow different businesses to join a MEP, either through a group or association or through a PEO. According to the DOL, PEOs will contractually assume administrative responsibilities for their client employers.

“President Donald J. Trump is moving to expand quality, affordable workplace retirement plan options for America’s small businesses and their employees,” said Secretary of Labor Alexander Acosta. “Many small businesses would like to offer retirement benefits to their employees, but are discouraged by the cost and complexity of running their own plans. Association retirement plans give these employers a simple and less burdensome way to offer valuable retirement benefits to their employees. The proposed rule helps working Americans and their families take care of themselves in their retirement years.”

The DOL notes that 38 million Americans do not have access to workplace retirement plans. Association retirement plans would permit companies within a city, county, state or multi-state metropolitan area, or within a particular industry, to band together. Sole proprietors, as well as their families, would also be permitted to join such plans. According to the DOL, PEOs generally are going to be human resource specialist companies.  

DOL says that the proposal would enable small businesses to offer benefit packages comparable to those offered by large employers. DOL expects the plans to reduce administrative costs through economies of scale and to strengthen small businesses’ hands when negotiating with financial institutions and other providers.

Open MEPs have long been a focal point for the retirement plan industry, but the topic gained traction when, earlier this year, President Trump ordered the DOL to address this issue directly. Supporters say open MEPs are one of the primary ways to address the retirement plan coverage gap among employees of small businesses. This step comes after, earlier this month, the The Office of Management and Budget finished its review of DOL’s MEP proposal, calling it “major” and “economically significant.”  

Some experts have suggested, should the push to expand open multiple employer plans find success, this could result in many more small businesses offering MEPs—which will in turn open up new opportunities and challenges for advisers, as well as for their existing plan sponsor clients.

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