Balancing Act
A significant portion of a retirement plan adviser’s daily routine has been altered by the financial market meltdown of 2008. Whether it entails serving the plan sponsor client, preparing the content to be delivered at a future participant education meeting, or just working through the family budget—not much has remained the same. To borrow a succinct quote from W.C. Fields, “Things happened!” What remains for the plan adviser?
Ends of the Spectrum
Plan advisers have always accepted their position as the first line of defense against participants for the plan sponsor. That is part of what plan advisers are paid to deliver. However, today, the angry mob—a.k.a. plan participants—is facing the confluence of insufficient funds for the completion of the beachfront retirement home and the potential need to work an additional seven to 10 years in order to make all of the old paradigm numbers work.
The angry mob feels betrayed by the financial services industry, the capital markets, and their retirement plan adviser (who didn’t advise them to “go to cash” at the end of August of 2008). At the same time, most plan advisers are cognizant that plan participants historically have preferred to play the Blame Game over choosing to accept personal responsibility for the returns generated in self-directed retirement accounts. Many participants are directing their anger at the retirement plan adviser and retirement provider.
Velocity Is Second to Vector
When seismic shifts occur in the investment world, the magnitude of such a shift is not nearly as critical to the investor as is the direction of the move. (Consider the number of times you have heard someone ask, “Did the market go up or down today?” versus the number of times you have heard a participant ask, “What amount did the market move today?”)
In my career, there have been three major downward shifts, providing me the reference point to espouse the following:
- The equity markets rebound (albeit, the recovery can last from 3 months to “we will find out”).
- Plan participants usually are shocked (despite all of the support materials to the contrary) by the sheer magnitude of the movement.
- The retirement plan adviser frequently is identified as a paid service provider who was asleep at the wheel, as he should have anticipated, forecasted, and informed the angry mob about this impending drop in value so that plan participants could have appropriately reallocated their money!
How can an adviser mitigate being the target of the angry mob in these scenarios?
Selling Illusion Is ProfitableMost advisers with five or more years in the retirement plan industry are fully aware of the simplicity in “setting up” or “leading” a client into believing that he is willing and capable of delivering services substantially broader than what the written contract describes.
Although retirement plan advisers never contractually agree to “contact and advise participants to go to cash in advance of unprecedented drops in the domestic or foreign equity markets,” the angry mob has voiced the opinion that ”advisers should have informed us!”
Few plan sponsors read and comprehend the operating agreements of plan advisers and product vendors. Even fewer plan participants have the opportunity to view such corresponding agreements. Therefore, most plan sponsors and almost all plan participants are relying upon “what they have been told, by someone,” about what services should be delivered and what education should have been received. Does a plan adviser’s spoken word imply—to either the plan sponsor or the plan participants—that a level of service is to be delivered that is far greater than the written contract will support? Does the spoken word imply the delivery of a service that is unrealistic?
At least annually, plan advisers should review client contracts to make certain they are fully aware of contractual delivery requirements. Implying to the client that “more” services, education, or client interaction will be delivered is a risk that may not come with commensurate reward.
Steff C. Chalk is CEO of the Fiduciary Consulting Group, a fee-only fiduciary consulting practice serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the co-author of How to Build a Successful 401(k) and Retirement Plan Advisory Business.