Taking the Pulse of Top-Performing DC Advisers

Each year J.P. Morgan brings together more than 100 of its strongest-performing defined contribution (DC) plan advisers for a DC summit—to hear about what is working on the ground and where improvements can be made from a product and process standpoint.

This year the firm invited PLANADVISER to sit in on the conversation, and to say that there are more than a few items of concern out there right now for plan advisers is a serious understatement. John Galateria, head of the North America institutional business for J.P. Morgan Asset Management, opened the summit by running through a list of 10 themes that will be very familiar to those working every day in the advisory industry—observing that each has a chance of derailing hard-won progress made by advisers and their clients in recent years, but also of shaping and propelling new advances. 

“On the list of top priorities right now are fees, litigation, core menu simplification, the benefits of white labeling, target-date fund (TDF) glide path evaluation, unbundling of large plans for more transparency, alternatives in defined contribution plans, retirement income security, the growth/transfer of wealth to the Millennial generation, and the power of auto-features and re-enrollments,” Galateria said. “These are the issues our advisers tell us they are tackling on the ground and discussing with plan sponsors and other providers every day—and they are also a very big focus here in the home office.”

Adding an 11th item to the list of potential disruptors, Galateria later cited the ongoing efforts by more than half of state governments to introduce mandatory workplace savings schemes. “With so much disruption to overcome, it’s increasingly becoming clear that bold thinking and courageous action on the part of advisers are needed to protect the progress we have made and to push the industry to the next level of performance,” Galateria noted. “It’s up to the folks in this room right now to solve the retirement challenges our nation faces. We know that the we can’t leave it up to individual investors to do it themselves, nor can we wait for the government to step in with solutions that are going to be effective.”

Echoing the sentiment of many in the room, Galateria noted that all of these factors present a real risk of slowing or halting the progress the industry has made in the 10 years since the ratification of the Pension Protection Act (PPA). “We have heard clearly from all the advisers here today that their plan sponsor clients are really laser-focused on their litigation risk under ERISA,” he said. “Many are holding off on moves they feel would be the right thing to do, simply because they’re confronted with so much perceived litigation risk.”

 NEXT: Optimism abounds as well 

Joining Galateria in opening the summit was Anne Lester, head of retirement solutions for J.P. Morgan's global investment management solutions group. She echoed Galateria’s list of challenges, citing the 10-year anniversary of the PPA and the ongoing rollout of the Department of Labor’s (DOL) new fiduciary regulation as two major milestones for the industry.

She also warned that the wider demographic trends in the United States are quickly and powerfully reshaping the work advisers are called on to do. “There are a few statistics that sum up the demographic trends quite well,” Lester said. “For example, we can see clearly now that by 2030, the U.S. will have more people who are over the age 75 than who are at any other age. In other words, there will be more people over the age of 75 than there are young people in the workforce. It’s going to have a big impact on the U.S. and global economies.”

Lester encouraged advisers in the audience to look to places like Japan for an example of what this will look like: “That country is going through some well-publicized challenges related to having a very top-heavy population. Growth is weaker and the quality of life of older and younger people is being strained due to a lack of income.”

To avoid the same fate in the U.S. may be impossible given how difficult it is for either government or business to shape demographic trends. “But what we in the advisory industry can do is start making sure wealth is being built up among the younger segments of the population,” Galateria observed. “We can’t allow the problem to get worse and worse by allowing Millennials to fall behind on their own savings needs.”

Advisers in the audience agreed—with a few pointing out that their plan sponsor clients are starting to tune into these demographic issues, given that their own workforces are skewing older and older. One even suggested a few clients have started bringing Millennials formally onto the retirement benefits committee, in a clear attempt to be more forward-thinking.

“This is the type of bold action that is going to be invaluable in keeping the industry on track and making sure DC plans work for people in the decades to come,” Galateria concluded. “I’m actually very optimistic that the DC system we are still building out day by day will serve Millennials well, especially if we can impart all of this messaging to them now, while they have the power of time on their side.”