In Practice December 6, 2013

Opportunity Abounds Among Older Workers

Nearly one in four U.S. households age 50 to 59 wants more investment advice—and is willing to pay for it.
Reported by

As a group, investors age 50 to 59 were most likely to say they need more financial advice, according to “U.S. Retail Investor Advice Relationships 2013: Sorting Out the Winners and Losers.” In fact, 23% of older workers surveyed for the report, from research firm Cerulli, said they would be willing to pay for more financial services.

“While investors sometimes overestimate their willingness to pay for advice, there is clearly demand among these investors for a more formal approach to ongoing advice,” says Scott Smith, director at Cerulli. Providers should not be alarmed if prospective clients show resistance when presented with formal pay structures.

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When it comes to actually winning new business, the report contends investors want straight talk from financial professionals about how and why specific investment products make sense.

Consistent Communication

Cerulli says advisers must maintain consistent communication throughout the financial planning process, helping clients identify the most appropriate products and solutions for their particular investment needs.

Interestingly, an advisers’ willingness to examine client goals and explain investment analysis clearly are more important to prospective clients than past investing performance relative to the overall market.

In fact, 46% of respondents described “taking time to understand needs and goals” as “extremely important” in selecting a financial adviser. That’s compared with 37% calling historical investment performance extremely important when considering an adviser.

The report also identifies a number of challenges facing financial advisers in the investment marketplace.

Despite the industrywide effort to highlight and reduce fees, more than 60% of investors are unable to recognize or understand compensation structures. 

Another challenge is the impact of service bundling on clients’ willingness to pay for financial advice. Investors are used to receiving investment advice within asset management arrangements and are less comfortable paying for standalone financial advice. 

Advice Services

“Until the investing public more clearly understands the benefits of comprehensive advice, providers are forced to bundle their asset management and advice services, which creates the impression of free advice for clients,” explains Roger Stamper, senior analyst at Cerulli.

Other findings show advisers expect clients to demand more comprehensive financial planning services in coming years. Currently, about one-third of clients receive what their advisers consider comprehensive financial planning services, and another 27% receive modular planning usually focused on retirement accumulation. Advisers anticipate increasing their comprehensive engagements beyond 40% of clients over the next three years.

The report, currently in its fourth iteration, is an outcome of a partnership between Cerulli Associates and Phoenix Marketing International.

More on the report, including a short preview and the table of contents, is available here.

Compliance December 6, 2013

Court Appoints Fiduciary for 401(k) Plan

A federal court order appointed an independent fiduciary for a Holtsville, New York retirement plan.
Reported by

The order comes after the Department of Labor (DOL) filed a lawsuit, Harris v. Windswept Environmental 401(k) Plan (civil action number: 2:12-cv-06179-JS-WDW), in the U.S. District Court for the Eastern District of New York. The suit petitioned the court to appoint an independent fiduciary to administer the plan and distribute assets to participants and beneficiaries, following the death of the plan’s sole fiduciary.

The order from the federal district court appoints M. Larry Lefoldt as an independent fiduciary to manage the 401(k) plan of the defunct Windswept Environmental Group Inc.

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The 401(k) plan was established in May 2001. The plan’s administrator, trustee and sole fiduciary, Michael O’Reily, died in November 2008, and Windswept Environmental ceased operations in February 2009. As a result, no one was administering the 401(k) plan, and certain former employees of the company did not receive a distribution of their promised benefits.

Under the Employee Retirement Income Security Act (ERISA), plans must be managed by fiduciaries. In the absence of a plan fiduciary, participants and beneficiaries may not be able to obtain plan information, make investments or collect retirement benefits. In this case, the plan has 12 participants and more than $129,000 in assets.

The lawsuit resulted from an investigation conducted by DOL’s Employee Benefits Security Administration (EBSA).

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