And those who make bad investment decisions in employer sponsored plans are in a similar, if somewhat more precarious position, says Stig Nybo, president of pension sales and distribution at Transamerica Retirement Solutions. In other words, there are substantial hurdles to overcome in terms of basic financial literacy among participants in defined contribution retirement plans before advisers can ensure workers accrue adequate assets for retirement.
That means advisers who incorporate a participant education policy statement into their services—and work hard to deliver what it promises—can add substantially to their value proposition, Nybo says, though they must be careful to keep such a statement general enough to limit potential liability that can arise should education programs fail to deliver more specific improvements.
Nybo and a panel of experts tackled how financial advisers can sell and deliver education programs during a workshop on the opening day of the NAPA 401(k) Summit, hosted by the National Association of Plan Advisers (NAPA) in New Orleans. The main takeaway is that with new recordkeeping technology advisers are better equipped today to deliver stellar education programs to participants—and to profit by adding participant education policy statements that formalize and benchmark education efforts.
“One thing coming into the picture now is the ability to drive right down to the participant level, and identify savings and investing behaviors, and calculate projected outcomes for each worker,” Nybo says. “That takes the power of education programs even a step further than the conventional education tools we’ve used for years and years.”
Education programs have shifted from increasing general awareness around a retirement plan to actually moving the dial on important retirement readiness metrics among subsets of participants, such as those with age-inappropriate asset allocations. These metrics can include a plan’s average 401(k) contribution percentage, income replacement ratios, enrollment rates and age-based asset allocations, among others. Nybo says new technologies can give an adviser and sponsor clients a complete breakdown of participants according to these various data points—thereby identifying which subsets of participants require what types of education (see “Sending the Right Message”).
And for those advisers not working with a service provider that can deliver this type of granular reporting, Nybo suggests it’s time to find a new recordkeeper.
Devyn Deux, vice president of client relations for Pensionmark Retirement Group and another member of the panel, says advisers can take advantage of this trend by formalizing an education policy statement to serve as a “guiding light” for education efforts. A formal participant education policy should not make specific promises that may be broken, she says, such as guaranteeing a minimum number of group participant education meetings per year, but should instead be a process-oriented document that shows sponsor clients that education is an important part of the adviser’s work.
“The main value of an education policy statement comes from the clarity it can provide to plan sponsor clients in terms of the goals and strategy of participant education activities provided by the adviser," Deux says. The policy could outline the types of metrics that an adviser will work to improve through participant education efforts, she says, as well as general strategies for improving those metrics. Advisers should shy away, though, from including language about the size of improvements or time frames over which improvements may happen.
Deux adds that participant education policy statements can play a critical role in 404(c) safe harbor compliance, which is part of the reason why Pensionmark developed such statements for use by its advisers. One 404(c) requirement is to ensure participants receive sufficient education on the available investment options to make an informed investment decision, she says, so a well-documented and reasonably constructed education process is a key during audits from the Department of Labor and other federal regulators.
“We wanted our sponsor clients to have a way to prove their education process in the eyes of the regulators,” Deux explains. “The education policy comes out of that.”
Panel member Liz Davidson, CEO and founder of the financial education firm Financial Finesse, warns that formulating an education policy statement and generating buy-in from plan sponsor clients is only the first half of the adviser's job. Equally, if not more important, is to ensure enactment of the policy so sponsors see the promised improvements, making them more likely to keep a favorable view of participant education efforts.
“We see a problem that a lot of effort goes into creating the statements, and there’s a lot of excitement and interest from the sponsor, but in some cases they’re not actually implemented,” Davidson says.
Deux suggests that advisers use the policy statement to develop additional, more specific “working documents” that prescribe actual steps for plan sponsors to follow in their education programs. Informal working documents can be used to set more specific benchmarks and make more aggressive promises to sponsor clients, Deux says, without necessarily opening up additional liability should the goals in the working documents be missed.