A replay of the “Distribution of Liquid Alternative Mutual
Funds – Assessing Advisors’ Growing Demand Across Channels” webcast, which
originally took place on March 20, is now available to subscribers of Strategic
Insight (SI), an Asset International Inc., company.
The webcast, hosted by SI’s Dennis Bowden, is approximately
45 minutes long and covers:
which channels have been the fastest adopters of liquid alternative
funds and how might the evolution of such demand project moving forward;
what categories of alternatives have made the largest
inroads within each channel;
how is the competitive landscape for alternative funds
evolving and where are newly launched alternative funds being adopted at the
fastest pace; and
what opportunities might potential rotations from
traditional bond funds create for alternative strategies and what are some
important demand nuances across channels.
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It’s
a phenomenon unique to the retirement planning advice industry that even those
participants who make good investment decisions often don’t know they’re making
good decisions.
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.