In Practice December 15, 2015

It’s On You to Recruit New Adviser Talent

The managing director of corporate relations for the CFP Board says there are many ways to successfully recruit Millennials and Gen Xers into an advisory practice—what matters most is the effort.
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As managing director of corporate relations for the Certified Financial Planner (CFP) Board, Joe Maugeri is often asked to speak about the best approach to attract—and educate and retain—aspiring financial professionals.

In fact, his current position at the CFP Board was developed in part to increase the number of CFP professionals while continuing to strengthen and enhance the organization’s connections within the financial services industry. The new role was created circa May 2014, about three years into Maugeri’s tenure at the organization, and since then the call for advisers to improve recruiting and training techniques has only increased.

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Advisers may be feeling a positive sense of momentum for key business metrics heading into 2016, but the industry is still not in the clear from a recruiting, business-succession-planning and talent-pipeline perspective, Maugeri agrees. At a very high level, the strategies that seem to work best for attracting Millennials and others who might be less interested in a financial services career involve toning down the sales aspects of the job—at least at first. Some functions of the advisory industry will always be built primarily around sales functions and earning commissions, but these are not the only pathways one can pursue, and often they become more attractive only after an individual moves along in his advisory career.

For such reasons, Maugeri suggests new talent be presented with a clear career path that sets expectations and goals for the first year, or even the first two years, of the new adviser’s career. This time is probably better spent training the new employee on things such as portfolio building processes, client reporting and business structure—rather than putting the focus on sales and production from the start. All firms would like to hire someone who can immediately come in and start producing loads of new business, but often it’s just not the reality.

 NEXT: High income potential matters, too

“Financial advisers, especially those committed to high standards of client care and fiduciary prudence, are uniquely qualified to help individuals improve their lives,” Maugeri adds. “You can pull all their finances together, solve financial problems and make a plan to achieve their financial goals.”

This is a compelling message among those completing college degrees and looking to make a career choice, he says. Of course, it does not hurt a firm’s prospecting ability to be able to talk about the very high income potential associated with financial services careers. Besides this, it’s a “dynamic, respected profession,” as Maugeri puts it, that plays an important role in the global and national economy.

Maugeri suggests that it is often surprising for those trying to recruit new advisory talent just how much the choices of language and presentation matter—a point of view backed up by substantial industry research.

For example, according to Fidelity Investments, only two out of 10 college students and young professionals surveyed for its most recent “Recruiting Redefined” study said they were familiar with the adviser profession, and more than six in 10 could not name a single firm that employs advisers. Yet, after learning some basic facts about the industry, nearly half of the young people surveyed said they would consider a career as a financial adviser.

This is good news for advisory firms, considering that a substantial portion of the advisory work force is nearing the end of their working lives. Cerulli Associates pins the figure at four in 10 advisers being either at or approaching retirement age. Perhaps more informative, the average age of financial advisers is just under 51 years, with nearly one-third of all advisers falling into the 55 to 64 range.

“The numbers are very telling when mapped against the fact that demand for advisory services and the underlying career path is expected to grow substantially in the next five years,” Maugeri says.

NEXT: Finding the right path  

Plugging for his own organization and other providers of adviser education and standard-setting, Maugeri notes that financial professionals consistently report an increase in average annual gross earnings after receiving their CFP certification. This is an attractive prospect to those entering the work force, young people who thirst for opportunities to be rewarded for hard work and for setting themselves apart from their peers, he says.

“We encourage firms, when they’re hiring people out of school, to seek out the formal financial planning programs,” he adds. “Just the CFP Board has more than 220 schools currently that we partner with to provide financial planning education. It puts the students through a rigorous program that touches on all the key areas of advising and financial planning. These folks can really hit the ground running if you support them the right way.”

One additional piece of advice: “Firms that actually show potential recruits all the information upfront, in terms of how they’re going to prepare you and train you for this career, have much better success and retention. It’s about sending the message that the firm is willing to invest in you, the new adviser.”

This last point is critical, Maugeri says, because, in the coming years, recruiting pressures will heat up substantially. “So chances are you won’t be the only one going for a strong potential recruit,” he concludes. “You’re going to have to have a compelling message about why the individual should come to work for you, because they’re going to have a choice.”

Compliance December 14, 2015

What to Expect in the New Form 5500

Questions about compliance are optional, at least for now, and plan leakage is a new area of scrutiny.
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The big news on Form 5500, according to Linda Fisher, principal of Linda T. Fisher Form 5500 Consulting in Chicago, and Form 5500 fangirl, are the new compliance questions for the 2015 plan year. “Optional,” the IRS says, “but we strongly encourage you to answer them.” When the instructions accompanying the questions turned out to lack sufficient detail for plan sponsors, Fisher says, a flurry of comment letters motivated the Internal Revenue Service (IRS) to make those questions optional. “There was a huge sigh of relief,” she says, “because of the lack of clarity and the big changes.”

The compliance questions are noteworthy, according to Michael Krucker, senior manager of employee benefit consulting at Plante Moran, a certified public accounting and business advisory firm that prepares, reviews and assists with Form 5500, among other services, because back in 2004 certain types of information was requested, then cut from the form in an effort to streamline the process.

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“Now they’re back,” Krucker says, noting that Form 5500 now asks for information on how the plan satisfies discrimination testing, methods for testing requirements, if the ADP or ACP test is used, and the timeliness of plan amendments. “Pure compliance,” he says.

The compliance questions can be filed on paper, using Form 5500-SUP—a paper-only form—by some small plan sponsors that are not required to file electronically: those smaller companies that do not file at least 250 government forms, such as W-2s and 1099s. The form will contain the same IRS compliance questions on Form 5500 and Form 5500-SF. The advantage of paper-filing is that the answers to the new IRS questions aren’t made public on the Internet, but it may not apply to many plan sponsors. “We don’t think many people will be doing the paper form,” Fisher says.

NEXT: Could the new questions unearth hidden compliance issues?

Krucker notes that the compliance section could bring to light compliance issues that plan sponsors weren’t aware of. “There’s a lot we don’t know yet,” he says. “Previously, where issues might have gone undetected, Plante Moran might come across issues relating to ADP or coverage testing, and quietly address them through the self-correction program. We had more opportunity to go through things on a self-correction basis,” he says. “But now there could be more exposure to quicker follow-up from the IRs on these items.”

The self-correction program is not being dismantled, Krucker says, but the new questions could reduce the time that a plan has to correct errors. “Self-correction is only available to the extent that you’re not under examination,” he points out.

Also significant, Krucker says: plans are providing more information about their plans—how they operate, how compliant they are—to the government, possibly giving government agency some more tools to gauge and enforce compliance. “To be honest,” he says, “plan sponsors don’t know much about this yet.”

More of a burden on the recordkeeper than the plan sponsor, Schedule H and Schedule I will ask plan sponsors for more information on plan leakage, a/ka/ “in-service distributions.” The reason, Krucker thinks, stems from the critical issue of retirement unpreparedness, an area of great concern for both the DOL and the IRS.

Krucker believes the two agencies are trying to quantify the distributions taken for hardship reasons. “They are trying to look at leakage from these plans, trying to get at the hardship and the purpose behind it,” he says. “What rules or guidelines might they try to put in to help people retire? They are trying to gauge how much goes out in terms of hardship or other in-service forms. Schedule H previously asked plans to report simply on ‘distributions.’ ” Now they are being asked for a more precise definition.

NEXT: Unrelated income

Fisher notes that the name of the preparer, at the very bottom of the form, is still optional, but the word is no longer there. “But the instructions still say it is optional,” she says, pointing to concerns among preparers about a possible requirement to answer this information. “One concern is being contacted by the IRS or the DOL when I’m not a power of attorney for the company,” she says. “The plan sponsor should be the one that’s responsible for answering questions on the Form 5500.”

Unrelated business taxable income is a growing area of concern for retirement plans, Krucker says. “Depending on the types of investments the plan is invested in, that could kick off income that would be unrelated to the business’s taxable income. So some portion of that trust’s income would be subject to tax. The easiest example is a partnership. If a retirement or welfare trust engages in a partnership, it’s a partner in that business and is unrelated to the tax-free nature.”

Income that is distributable to the plan could be taxable, he explains, or any unrelated business taxable income the trust incurred. “Could bring to light something the plan sponsor wasn’t aware of,” Krucker says. “It is becoming more and more important to review.”

Fisher points out there’s a good possibility the questions that are optional now will be mandatory for the 2016 plan year filing. “They’ll have another year to work out the guidance,” she says. “I hope the FAQs will be answered sooner than a year from now, so we can adjust systems, and determine who to contact at the plan sponsor. But the questions need to be defined better.” 

FAQs about the compliance questions are on the IRS’s website. Instructions for Form 5500 are on the DOL’s website. The IRS also has information on Form 5500-SUP.

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