Client Service July 3, 2019

Newly Allowed 401(k)s Will Need Advisers

Advisers may shy away from helping hemp and CBD companies with their 401(k)s because they may find themselves crossing into advising for a cannabis company as well, but there are protections—and money to be made.
Reported by

Art by Katherine Streeter


With the passage of the 2018 Farm Bill by President Donald Trump, hemp and Cannabidiol, or CBD, companies can sponsor 401(k) plans for employees and take advantage of the related tax deductions.

Josh Horn, partner and co-chair of Fox Rothschild’s Cannabis Law practice in Philadelphia, explains that hemp that has tetrahydrocannabinol, or THC, with a 0.3% dry weight, and CBD, which is derived from hemp, were taken off the controlled substance list by the Farm Bill. The bill also allows hemp farmers to apply for crop insurance, and, according to Horn, makes banking and finance systems available to these businesses.

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Michael Nepveux, an economist with the American Farm Bureau Federation, said in an article, “Uncertainty still exists about how and when regulations in general will be implemented and what those regulations will look like,” adding that regulators indicated it will likely not be until the 2020 planting season that definitive rules will be in place.

Matthew Able, senior partner at law firm Cannabis Counsel PLC and executive director of Michigan NORMAL [National Organization for the Reform of Marijuana Laws], says he had a couple of clients call about the new law. Clients are usually individuals or smaller companies, and they are not yet thinking about offering a 401(k). “If they make a lot of money this year, there may be a lot more action on that next year,” he says.

When they do think about establishing a 401(k), hemp and CBD companies may face obstacles. According to a blog post from Jewell Lim Esposito, an attorney with FisherBroyles LLP in Washington, D.C., “The real obstacle to implementing 401(k) plans for otherwise legal marijuana producers are the industry retirement plan providers who are nervous and jittery about dealing with ‘traffickers.’ In fact, they’re more than nervous. They have dug in their heels, refusing to do business with cannabis companies technically engaged in trafficking under federal law.”

One issue, according to Esposito, stems from the controlled group rules under the Internal Revenue Code. If a cannabis company starts a hemp division, or if a parent company has both a cannabis business and a hemp business, these are deemed as a “single employer” under the Employee Retirement Income Security Act (ERISA) and the Tax Code. If only the hemp division employees participate in a 401(k), all employees of the controlled group are considered in ERISA-required coverage and non-discrimination testing, and the plan would likely fail these tests and be disqualified.

So, an adviser that agrees to serve a hemp or CBD company 401(k) may find itself crossing into advising for a cannabis company as well. Even hemp companies not engaged with cannabis businesses will run into trouble because people don’t understand the difference between hemp and cannabis, so companies may not do business with them, according to Horn. He says there is a big learning curve.

Esposito says advisers cannot afford to be wrong in their advice. Controlled groups failing the required annual coverage test is typical. “With the very automatic operation of applicable tax rules, a head-in-the-sand, this-is-too-taboo approach will underserve or misguide the very cannabis and hemp/CBD companies that yearn for guidance that only experts in the retirement industry can provide,” she says.

Providers are reluctant to do business with cannabis companies even though cannabis companies are legally able to adopt 401(k) plans, and U.S. Attorney General William Barr is on record with the stated intent to refrain from pursuing trafficking prosecutions against otherwise legally-operating cannabis companies, according to Esposito.

Horn says, “In a nutshell, the federal government has historically taken a hands-off approach to medical marijuana and has indirectly not touched recreational use unless there is a crime like transporting over state lines. The Department of Justice has defunded prosecution efforts. It creates an interesting dichotomy between medical and recreational uses and the juxtaposition between federal and state laws.”

Able says, “We will continue to have these issues as long as cannabis is a Schedule I controlled substance. The more trouble companies have, the better, because it will stimulate change. If everyone is fat and happy, there’s no reason to rock the boat.”

Advisers should consider this: 2018 New Frontier Data from the Hemp Business Journal shows the hemp industry is projected to grow to $1.3 billion by 2022, and CBD product sales are projected to increase to $430 million. For financial firms it’s a question of profits versus reputation.

Able believes it will be financial firms, not activists, that push cannabis off Schedule I because they want a piece of the pie.
Practice Management June 28, 2019

How To: Social Media for Retirement Plan Advisers

Many advisers consider themselves to be social media experts, but a closer examination of their practices shows there is room for improvement.
Reported by

Art by Patrick Edell


Financial advisers have long understood the importance of forging a personal connection with their clients and prospects. But as people increasingly rely on social media and other digital means of communication to connect with their friends, families and the broader public, there has been some debate about the best ways for retirement advisers to leverage social media as a means to promote business growth and deeper client connections.

Mark McKenna, head of global marketing at Putnam Investments, says advisers’ use of social media platforms has evolved over time and will certainly continue to do so.

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“I used to hear advisers who said that they didn’t have time to learn a new communication medium or technology,” he says. “Now they are all asking, ‘How do I use social media in best way?’ Today, most advisers realize they can reach targeted individuals on social media far more effectively than just doing a seminar. Social media is more efficient and it helps create a dialogue.”

As noted in the 2019 Putnam Investments Social Advisor Study, back in 2013, only 5% of advisers were using Instagram for business purposes. Today, that number has risen to 38% of financial advice professionals. LinkedIn, meanwhile, was already used by 71% in 2013, rising to 72% this year. Use of Facebook is up almost 40 percentage points (62%) compared to 22% six years ago, while Twitter use increased from 16% of advisers to 52%.

“What the social savvy adviser is doing is using all forms of social media, from LinkedIn to Instagram, Twitter, shared news, etc.,” McKenna observes. “We used to see advisers act as listeners. They didn’t take that next step and actually use social media for real prospecting, or to build their brand as educators in the marketplace. That’s what I think we’ve seen change the most, advisers think ‘I’m going to now engage, I’m going to retweet or repost an article that I know is really interesting to these groups.’”

Atlanta Retirement Partners, a financial services firm based in Atlanta, heavily relies on LinkedIn for research, whether it’s searching for background detail on prospective clients, deciphering who has decisionmaking authority when it comes to potential workers, and who may have a working relationship with a customer, says David Griffin, founder of the firm.

“We do almost everything through LinkedIn, it’s the easiest way to target those people who are decisionmakers for institutional type plans,” he adds. “We find that this preparation strengthens your relationship with your prospects and customers. You can talk about things that are important to them or their business.”

The social networking platform even exceeds the effects of email messaging, which can at times feel like noise due to its oversaturation. LinkedIn Inmail, adds McKenna, is a much more powerful tool when it comes to communication.

“If you look at your LinkedIn and you see you have a message, you feel fairly compelled to respond to it,” he suggests.  

Stepping back, the Putnam study shows that even though 83% of U.S. advisers are applying social media communications in their practices, and six in 10 advisers label themselves as social media experts, only 15% are “demonstrating high skilled approaches.”

McKenna doesn’t consider this finding a failure of financial professionals, as it takes time and resources to become a social media expert. For advisers looking to up their social media game, he suggests doing some benchmarking of their social media practices against other firms to understand how they score in comparison. One way to do so, he says, is through Putnam’s Social Advisor Maturity Curve, a quiz that places financial companies on a spectrum of social media expert levels, from beginner to intermediate, professional, and of course, expert.

“A lot of advisers have this confidence that they’re very talented in what they do, and they are, but when you assess them against their peers, they find that they stack up in a different quartile than they thought,” McKenna says. “What we wanted to do was bring this to the forefront, to raise the point that it’s not just okay to hang out on social media, you have to be active user.”

At the end of every test, depending on performance level, the quiz will recommend steps to maximize social media practices, such as investing in paid promotions on Facebook and sharing strategies with colleagues. And while retweeting a sponsored post or reaching out to clients via Linkedin InMail can have positive effects, McKenna argues that it’s those advisers searching for innovative avenues to grow their social media presence who will find victories from their efforts.

Importantly, even on social media, financial advisers must remain vigilant to stay compliant. McKenna has seen more advisers submitting graphics, charts and content to the Financial Industry Regulatory Authority (FINRA) before posting online, in order to acknowledge any appropriate foot or compliance notes.

Because of this rise in business communications platform usage among advisers and financial professionals, FINRA has created its own topic page, guidance and notices catered to helping advisers remain compliant when using social networking websites.

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