The 2022 PLANADVISER National Conference, held September 12 through 14 in Scottsdale, Arizona, focused on “breaking through barriers to build sustainable success for plans, practices and participants.” Among the speakers, Retirement Plan Advisers of the Year shared how they deliver optimal plan and participant services; make an impact on their community; address diversity, equity and inclusion in their practice; and expand plan access.

Panel discussions covered legislative and regulatory efforts—including an in-depth conversation with Securities and Exchange Commission representatives—as well as current research on participants’ behaviors, relating to individuals’ financial need and their priority for retirement income. Speakers gave tips for how to differentiate one’s practice and communicate with participants to achieve results.  

Advisers networked with peers and engaged with experts to learn how to add value for their clients. 

For further coverage of the 2022 conference, visit planadviser.com

 

A Conversation With the SEC

Three representatives from the Securities and Exchange Commission discuss Regulation Best Interest and other SEC accomplishments and efforts that are in process. Photography by Matt Kalinowski

Three staff members from the Securities and Exchange Commission—Jacob Krawitz, senior special counsel, division of investment management; Kelly Shoop, branch chief in the office of the chief counsel, division of trading and markets; and Roberta Ufford, senior special counsel at the analytics office’s industry specialist unit, division of investment management—discussed Regulation Best Interest and other SEC achievements and efforts in the works. 

Reg BI is now in full enforcement, they stressed, as is the agency’s updated interpretation of fiduciary duty as prescribed by the Investment Advisers Act. This means advisers and broker/dealers alike must be cognizant of the fact that “suitability” is not a sufficient standard when making product or account recommendations. 

According to the panel, under Reg BI, when making a recommendation to a retail customer, a brokerage professional must act in what is the client’s best interest at that time and not place his own financial or other interest first. This general obligation is satisfied only if the brokerage professional complies with the four component obligations that Reg BI specifies: 

The disclosure obligation demands that brokerage professionals provide required disclosures before or at the time of making the recommendation, addressing its merits and the details of the relationship between the broker and customer; the care obligation requires that brokerage professionals exercise reasonable diligence, care and skill in making the recommendation; the conflict of interest obligation demands that brokers establish, maintain and enforce written policies and procedures reasonably designed to address/mitigate conflicts of interest; and the compliance obligation orders brokers to establish, maintain and enforce written policies and procedures designed to achieve compliance with Reg BI. 

The panelists noted that Reg BI casts a wide net and explained that the determination of whether a broker/dealer has made a recommendation that triggers applying it turns on the particular situation’s facts and circumstances. Therefore, whether a recommendation has been made is not susceptible to a “bright line definition.” 

The SEC staffers also noted that factors considered in determining whether a recommendation has taken place include whether the communication could be reasonably viewed as a call to action or likely to influence an investor to trade a particular security or group of securities. As a rule of thumb, the more individually tailored the communication is to an individual or group of customers about a security or group of securities, the greater the likelihood the communication may be viewed as a “recommendation.” 

Importantly, the speakers said, Reg BI does not apply to investment advice provided to a retail customer by a dually registered professional when acting as an investment adviser. This is true even if the retail customer has a brokerage relationship with the dual-registrant or the dual-registrant executes the transaction in a brokerage capacity. Further, to trigger the best interest standard, a recommendation need not be positive in nature. That is, an explicit hold recommendation also triggers Reg BI, as do implicit hold recommendations that result from agreed-upon account monitoring between the broker/dealer and retail customer. 

The panel pointed to the following practices that firms may adopt to forestall Reg BI issues: avoiding compensation thresholds that disproportionately raise compensation through incremental increases in sales; minimizing compensation incentives for employees to favor one type of account or one type of product over another, such as proprietary or preferred provider products, or comparable products sold on a principal basis; eliminating compensation incentives within comparable product lines by, for example, capping the credit that an associated person may receive across mutual funds or other comparable products over all providers; and implementing procedures to monitor recommendations.  

The panelists also touched on proposed regulations regarding money market funds; environmental, social and governance investments; and cybersecurity. —John Manganaro

 

The Psychology and Practicality of Retirement Income

Shlomo Benartzi, Behavioral Decision-Making Group at the UCLA Anderson School of Management, discusses “The Psychology and Practicality of Retirement Income.” Photography by Matt Kalinowski

While automated features have transformed the way participants save for retirement in defined contribution plans, one author of the features says they are not the answer for decumulation and creating income in retirement. 

Speaker Shlomo Benartzi, co-founder of the Behavioral Decision-Making Group at the UCLA Anderson School of Management, said auto-features that harness the power of participants’ inertia to help them save for retirement do not work to turn DC plan savings into retirement paychecks. 

“Over a lifetime, people accumulate assets—and differences,” said Benartzi, who, along with Nobel laureate Richard Thaler of the University of Chicago, pioneered the Save More Tomorrow program to nudge employees to increase their retirement savings rates gradually over time. “You can’t give the same solutions to such different people.” 

Benartzi also cautioned that participants should not be enrolled into income solutions that are irreversible: Circumstances—including health and cognitive ability—can change in retirement, and income may need to, as well. 

Benartzi, along with George P. Fraser, managing director at the Fraser Group, Retirement Benefits Group, and Michelle Richter, executive director of the Institutional Retirement Income Council, outlined details of Benartzi’s new program Pension Plus, which uses data available from a plan’s recordkeeper, plus a short one-on-one interview to personalize a saver’s decumulation plan and create a retirement  paycheck. 

“For the average American, it gives people the ability to know what their [weekly, bi-weekly or monthly] check will look like,” said Fraser. 

Richter stressed that personalization, or “the need to understand the human,” is a key difference between the participant’s asset accumulation phase of retirement planning and the retiree’s decumulation phase.
While systems that assume the most popular plan options for all, as is common with auto-features, work well on the accumulation side of retirement plans, those same assumptions would end in results appropriate for only 4% of people in decumulation, Benartzi said. 

Using as examples a man and a woman having the same age, retirement account balance and self-assessment of their health as “good,” Benartzi demonstrated the tool and how giving different answers to the questions would result in vastly different retirement paychecks. In the example, one person’s set of answers produced a monthly paycheck of $4,959, while the other’s was $761.“This is personalization in action,” he said. —Amy Resnick

Health, Wealth and Retirement

From left: Brea Dantin, ProCourse Fiduciary Advisors LLC, moderator of “Health, Wealth and Retirement”; Kevin Takinen, Sequoia Consulting Group; and Chris Ceder, Goldman Sachs Asset Management. Photography by Matt Kalinowski

If health care is the biggest expense in retirement, “Why do we silo it from retirement planning conversations?” said Brea Dantin, adviser and chief operating officer of ProCourse Fiduciary Advisors LLC. 

She and two other panelists probed how to incorporate health-expense planning into retirement planning and whether health savings accounts expand business opportunities for advisers. 

“We are already retirement experts—do we need to be health-care experts, too?” Dantin said. Employees are not thinking about health care in retirement, but their current cash-flow needs, she said. So how do advisers turn the conversation? 

According to Kevin Takinen, adviser, 401(k) and financial well-being, at Sequoia Consulting Group, given employees’ decumulation needs, and that the average retiree’s health-care costs are projected to exceed $300,000, saving in an HSA is as important as saving in a defined contribution plan.

Still, Takinen said, advisers need not be health-care experts. “It’s important to cultivate partnerships,” he said. “Understanding that plan sponsor clients need to balance their benefits spend, advisers should ask to talk to their clients’ health-care brokers. Advisers should talk to sponsors about all their benefits offerings.” 

Chris Ceder, head of Americas retirement and financial wellness programs at Goldman Sachs Asset Management, stressed talking to sponsor clients and their HSA providers about what the HSA program will offer. “Do you want the accounts to be only a deductible offset? If so, that might not give employees the opportunity to save,” he said. “Advisers can work with clients’ benefits brokers on [program] design.” 

Partnering with HSA providers and educating plan sponsors and participants can create relationships that lead to providing additional services, said Takinen. Advisers have an opportunity to show employees how to allocate their money. “For example, save in the DC plan to the match, then put savings into an HSA, and, if there’s anything left, make Roth retirement plan deferrals,” he said.  

Further, HSAs can help sponsors pass DC plan nondiscrimination testing, Dantin pointed out. Highly compensated employees can put extra savings into the HSA, and they are still saving for retirement. 

In programs where HSA dollars may be invested, advisers can explain how that works, Takinen said. “It’s an additional opportunity to educate, partner and help. Start with goodwill-building; it could lead to a revenue stream.” 

Asked how advisers should advise employees who have no access to an HSA, Ceder said they need to boost their regular savings.  

Think about their savings in buckets, Takinen added: savings for living expenses, for health care and for nonessentials, for example. 

Dantin noted that efforts are underway to decouple HSAs from high-deductible health plans, which will make these vehicles available to many more people. —Rebecca Moore

Participant Mindsets and Communication Strategies

From left: Rebecca Moore, ISS Media, moderator of “Participant Mindsets and Communication Strategies”; Kelley Palmer, John Hancock; and Sean Kelly, Heffernan Financial Services. Photography by Matt Kalinowski

Market volatility, the rising cost of living, plus fears of having too small a nest egg and diminished Social Security are among the financial concerns weighing on the minds of retirement plan participants. Knowing this can help plan advisers connect with these individuals and provide valuable insights that could improve their circumstances, session speakers said. 

You may find yourself acting more as a financial psychologist than a financial adviser, because participants are anxious about the rising cost of living and market volatility, said Sean Kelly, vice president and financial adviser at Heffernan Financial Services.  

Panelist Kelley Palmer, senior director of participant marketing at John Hancock, emphasized that U.S. households are feeling pinched. Even among those earning over $250,000, 3% live paycheck to paycheck, and “stresses are across the board,” she said. 

For these reasons, participants are looking for help to optimize their retirement savings, and advisers can use that information to increase and improve communications. She cited data from John Hancock revealing that the share of employees seeking help with financial planning has risen consistently since 2018 and is higher now than ever. This year alone, the share of employees who would like such assistance rose to 75% from 73%. Nearly 80% of people surveyed between May and August said they could use help choosing investments, up from 76% in the first quarter, her data showed.

… employees seeking help with financial planning has risen consistently since 2018 and is higher now than ever.

According to Kelly, when the stock market is volatile, show participants that the market’s best days often follow its worst—e.g., how it bounced back in late March and April 2020 after its February dive. “Time in the market is better than timing the market,” he said, adding that it is important to communicate, “with market timing, you have to be right twice,” when you sell and when you buy. 

Palmer recommended communications that help participants forecast what their income will look like in retirement. Other topics good for communications, she said, include accessing expertise on estate planning; assessing financial wellness and identifying gaps; opening an emergency savings account; and understanding educational savings tools. 

The panelists also suggested that the topic of investing in a Roth, or after-tax, retirement account is a good one for engaging younger participants, because their longer window until retirement means they could benefit from decades of tax-free growth on their investments.
—Amy Resnick