Many new initiatives are popping up in the retirement industry, but which ones in particular can help make your practice better, while improving participant outcomes and getting paid for your services. That was the overarching theme of the topics addressed in a widely attended workshop session titled “Ready Eddies: Are You Ready for the Next Big Thing?” on Day 1 of the 2023 NAPA 401(k) Summit in San Diego, CA.
“There are really three big takeaways that we wanted to make sure that you think through this session. One is taking some time to think about strategy to deal with what's to come to make your practice better. The second is coverage and participant outcomes, which is clearly the focus of our industry, and the last thing is we all want to be paid for our services. And it is going to take a balance between process and products to grow your practice,” explained moderator Frank Zugaro, National Practice Leader for Huntington Bank for Retirement Point Advisory Services.
Zugaro was joined by Jennifer Doss, Defined Contribution Practice Leader at CAPTRUST, and Grant Arends, President – Retirement Services, intellicents, where they dug deeper into the prospects for managed accounts, retirement income strategies, financial wellness and small market solutions as part of that overarching theme.
Plan Data and Financial Wellness
When asked about financial wellness and the use of plan data, the panelists agreed that it is an important component to improve participant outcomes. For Arends though, he admittedly prefers the term financial planning instead of wellness and believes that data is absolutely key.
“We’re in the plan participant business, not financial wellness. If I can get gender, age, wage, and account balance, I can solve for emergency savings, I can solve for budgeting, I can solve for retirement planning, I can solve for all of those things.” Arends adds that when his firm divested from the recordkeeping business and got into private wealth, he says the biggest mistake they made was not doing it 15 years earlier. He further noted that they offer a financial plan to every single participant, and while they need data, they don’t need that much.
Meanwhile, one of the things to really think about when talking about plan and participant data is around disclosures and agreements that you have with your clients and recordkeepers, and how participant data will be handled, adds Zugaro.
Managed Accounts
Turning to managed accounts and why participants do not necessarily seem to be engaging, Arends and Doss agreed that adoption is going to be disappointing unless they are rolled into a qualified default investment alternative (QDIA) because, once enrolled, participants are finding value.
“It’s an engagement issue, not a managed account issue,” noted Doss. As to why the reticence, she explained that it gets into complexity and cost. “We had those same challenges when target date funds started coming out. They were complicated. People were like, what do you mean? What's this glide path? Why are they all different? How do we benchmark it? And so, I think we’re just in the early innings with manage accounts and we as an industry have to figure out how to make it less complex. And then obviously these have to continue to come down a little bit [in cost]. And then I think that's where you'll really start to see the success.”
Following up on that point, Arends suggests that the biggest mistake for people selling managed accounts is they are treating them like an investment option rather than a financial planning tool that takes into account all outside assets.
There’s also a fear of litigation. “If you just sell it as an investment tool, I think there's going to be a litigation issue with it; that's my one fear of manage accounts.” So how do you benchmark it? You must position it, and document and sell it as a financial planning tool versus an investment, he suggests.
Retirement Income
With various surveys showing that participants want a retirement income solution, but there seems to be ongoing obstacles to wider adoption, Doss suggested that it’s the same story as with managed accounts and that there are many different components to solutions, but that it also has to be part of a QDIA.
“I think a lot of times when we talk about retirement income solutions to solve a problem, we go immediately to product. But I would like to think about retirement income as a holistic issue we're trying to solve. We're trying to help people with deaccumulation, and that can be through adding a managed account solution that helps you with that process. How do you withdraw and what's the best way to do that? How do you take Social Security? It could be an out-of-plan annuity placement service, it could be an in-plan guaranteed option, it could be about having a separate retirement income tier that you just feel like is more targeted towards retirees in the plan.”
Small Market Solutions
Finally, in turning to the prospects of smaller plans, Arends, notably, said he used to hate working on them because they were just as much work as larger plans, but now he loves them because of the private wealth factor.
“It is so much easier to ingrain yourself with the business owner of a small plan in a small business to then garner the private wealth business outside of plan,” he says, further adding that private wealth revenue on individual business owners is generally much higher than that of individual participants. “So I’ve now found a way to actually make money in the small plan market by ingraining an extremely viable service alongside of that and that's private wealth. I think it's just a tremendous opportunity.”
