Now that the election is over, we have a good sense of the people who will drive pension and retirement policy and their positions. While no one can really predict what regulators and Congress will do, we do have a pretty good idea of the themes that will drive future action:
• Fee disclosure and transparency
• Definition of fiduciary
• Coverage for more people
Add in two possibilities: more lawsuits over fees — lawsuits that could very well move down market — and perhaps the role of fiduciaries regarding retirement readiness.
How should advisors be preparing for and taking advantage of these potential changes?
While we all like to complain about government intervention in our business and how there’s a lack of understanding, especially about advisors and the value that good ones bring, we should also remember that Section 401(k) is owned by the government, not the DC industry. Like it or not, they have the ability to change it whenever and however they choose. So we need to stop wasting time and energy complaining and try to figure out how to adjust, while helping regulators and lawmakers to better understand the issues and trying to influence them in a positive way. That’s the reason NAPA exists.
The Fee Disclosure Opportunity
While no one will argue about the value of fee disclosure, the DOL regs need a lot of tweaking, including what gets disclosed, and its format and frequency. Meanwhile, experienced advisors are striking while the iron is hot, shoring up relations with current clients about the value they provide for the fees they charge. No doubt: There will always be other advisors calling, with some offering to provide the “same” services at a much lower price.
Additionally, savvy plan advisors will be able to leverage the new fee disclosure information and heightened awareness to begin discussions with employers about the value they bring. It’s tempting to focus exclusively on fees, but there is real danger to any practice and to the industry in focusing on costs and not value.
Fiduciary Definition
Let’s face it: No one really wants to be a fiduciary, but the current pension system demands that employers oversee the retirement plans they provide on behalf of their employees. But employers, especially small and mid-sized companies, do not have the time, training or desire to do a really effective job. And providers face conflicts, which leaves either advisors or the government.
While focusing on fiduciary issues to scare plan sponsors will only get an advisor so far (perhaps even leading in the wrong direction), focusing on how an advisor can help employers fulfill a role they are not equipped or eager to handle, while leading participants to better outcomes, should be more effective.
Regardless of where the fiduciary definition issue ends up, advisors who want to focus on the DC market should be prepared to accept the role that employers and participants want them to play. This may mean that they will have to become not only fiduciaries, but also leaders.
Boosting Coverage
The government, especially Treasury’s Mark Iwry and, increasingly, states like California, want to make sure that more people are covered by retirement plans. While we might argue about how to accomplish that goal, no one can really question the intent. Coverage includes two issues. First, more companies should have payroll deduction retirement plans, proven to be by far the most effective way to increase savings. And second, more people should participate in existing plans.
Really small companies chaff under the burden and costs of traditional 401(k) plans, but there are alternatives, like SEPs and SIMPLEs. (These alternatives also spawn fledgling plan advisors.) Unless we figure out how to get smaller companies into the system, which many firms are doing, the government will do it for us. That is a very slippery slope.
Getting more workers to participate is just the first step in helping more Americans retire comfortably. Focusing on plan health as a process, not an event, and working toward that goal as an industry should demonstrate that the private sector is better suited than the government to provide adequate coverage. Advisors are the key drivers in reaching that goal.
They’re also the ones who focus on the “why” — that is, why they are in this business, which is to help improve outcomes, as opposed to the “what” — which is the services they offer. Focusing on the “why” will not only improve client outcomes, but will help advisors win more business.
Like it or not, much change is coming from Washington, and perhaps the courts as well. There are plenty of opportunities to complain, get to work or drop out. Your choice.
