Available Exits
Plan sponsors want to educate participants so they can make informed choices about saving and investing in their retirement plans, but when a participant is ready to exit the plan, do sponsors just want to send them out to the wolves? The recent industry focus on lifetime income options shows there is a renewed interest in helping plan participants with rollovers as they approach the end of their working lives—and even after they retire.
Traditionally, as participants reach age 60, they are solicited by local insurers and banks that want to sell certificates of deposit (CDs) and individual retirement accounts (IRAs), says Stace Hilbrant, managing director at 401k Advisors in Chicago. If an employer genuinely cares, Hilbrant contends, it wants employees to work with providers that have their best interests at heart and are not just looking to make money. The future of the adviser business, Hilbrant says, will go to those that meet that need.
“Part of our engagement with a new client is letting them know we will be guiding participants when ready to retire, but we do not accept fees for rollovers,” Hilbrant says; this appeals to sponsors that want to help participants make the right decisions.
One way plan sponsors can successfully guide retiring participants is to hire an adviser whose educational efforts continue beyond the point participants exit their retirement plan. The bar is being raised in educational efforts about how to be a better participant, and this will help participants be more educated retirees, Hilbrant maintains. “In all of our education efforts, we tell folks, ‘When you get near retirement, we are glad to give you a list of fund companies and insurance companies we think you should get to know,’” he adds.
Providing transition services counseling is important to advisers because they have been providing advice to participants throughout their working years, notes Bill Chetney, executive vice president at LPL Financial Retirement Partners. Offering transition counseling creates a continuity of the independent guidance advisers have been supplying in the retirement plan. If a product manufacturer were to suddenly communicate directly with a participant, the adviser would not be working in the participant’s best interest, Chetney says.
Some participants are more comfortable with familiarity, so they turn to their banks to roll over assets when they retire. However, with the adviser’s help, they could work directly with a fund provider to avoid commissions or other fees, Hilbrant says.
Automating a Process
Another solution for helping retiring participants make distribution decisions is to use a rollover platform provider, which equips advisers and investors alike with technology, financial planning tools and investment choices. Here is how it works: The rollover provider has electronic ties to various recordkeeping platforms that allow the distribution event (such as a termination distribution) to be flagged and subsequently checked against criteria established by the adviser (or provider in a direct processing environment). At the point of distribution, that flag triggers an alert from the rollover provider to the adviser, so that the adviser can reach out to the participants and consult with them about their rollover options. The rollover provider also has electronic linkages to various IRA providers that can facilitate a seamless transfer to a retail account when an adviser is not involved or when the account balance is too small to require the adviser’s engagement.
Although a plan sponsor can contract directly with a rollover platform provider, most vendors not only accommodate, but feature, financial advisers as part of their process of channeling plan assets into rolled-over IRA accounts.
Four different parties are involved in the rollover platform solution, according to John Geli, CEO of rollover platform provider Wealth Management Systems Inc. (WMSI). First, an adviser firm contracts with a platform provider to create a rollover program. Second, the adviser firm works with its advisers to roll out the program. Next, advisers talk to clients and recordkeepers to promote the program, and lastly, the platform provider partners with the recordkeeper to execute the program. The rollover platform provider offers technology, facilitating two different business processes: the account opening or referral to an IRA provider, and the actual distribution process, Geli says.
A true benefit to the adviser firm is that the rollover platform expands the financial planning tools and offerings for advisers, Geli says. For example, when a participant contacts an adviser’s call center, the adviser can see participant data on the WMSI system. If an adviser partners with WMSI, the solution technology can open the account with the IRA provider, prepopulate the distribution form or send distribution information to the recordkeeper.
With the platform solution, notes Michael Shafer, vice president of relationship management at WMSI, a plan participant has three servicing choices: 1) a website connecting to the adviser or rollover marketplace; 2) a call center in which participant data is displayed before the call center representative; and 3) the adviser, for whom WMSI provides participant information via the Web. He says the adviser chooses how to use the channels.
Shafer says advisers need to ask themselves whether they are happy with the amount of assets they are retaining or acquiring today. Are they retaining assets in a bubble or benchmarking against their competitors? How efficient are they at acquiring/retaining assets? How much are they spending on information technology? Some firms have built their own systems, but rollover platform providers can supply solutions for a fraction of the cost, he contends.
“[Adviser firms] are not just buying technology, they are getting a partnership and experience, also,” Shafer says, adding that a rollover partner may have 20 to 30 connections to fund companies that accept rollovers from retirement plans, whereas the adviser may not. In addition, the platform provider may have additional experience and technology, Shafer says.
“The key thing is to look at the ability to connect with and have a relationship with recordkeepers,” says Jacqueline Rynn, chief marketing and product development officer with WMSI. “Advisers need someone with experience finding ways to connect with recordkeepers, in addition to fund manager connections and relationships.”