From Plan Education to Wealth Management

Market analysis shows that there are very few retirement plan advisories remaining that are not connected to or running their own wealth management division—and many of the larger advisories are working to increase their individual wealth management footprints.

But what happens when we zoom in on the actual moment when a retirement plan participant shifts from basic education to requesting fee-for-service financial advisement? What does that moment look like, and how are the best plan advisories doing it to ensure a fiduciary standard of care?

Divide, Then Conquer

The division between participation education and individual wealth management services should be made clear from the start of a defined contribution retirement plan consulting services agreement, says Bonnie Treichel, founder and chief solutions officer at Endeavor Retirement.

A plan sponsor should know and agree to the retirement plan adviser offering wealth management services to participants—something the ERISA attorney says she often sees missing from the plan-level agreement.

“Retirement plan advisors have to be very clear about the line between plan advice and when they are moving into an arrangement that is wealth management for a separate fee,” Treichel says.

Getting plan sponsors’ agreement for such a setup should not, in the current environment, generally be an issue, according to Treichel, plan advisers and studies show that plan sponsors want to provide access to individual financial planning to employees.

“People need and want education and advice,” says Sean Kelly, financial adviser and vice president for Heffernan Financial Services. “But when we do group education or go into one-on-one meetings with participants it is always about education and not wealth management … that’s not how we built our 401(k) practice.”

Kelly says the Heffernan team often goes into participant meetings without an agenda, instead listening to what participants are saying and honing their sessions to the questions on hand.

Many people, Kelly notes, realistically get financial advice when they are “sitting next to their brother-in-law at the Thanksgiving table.” The role of 401(k) participant education, then, is more about helping them “get organized financially,” says Kelly.

“In most cases, they don’t have someone to talk about their 401(k) or all the other things they are dealing with,” he says. “They might have aging parents, kids in college, maybe they’re getting married or buying a home—we help them get organized and help them understand at a high level that they have a real structure in place to help them.”

That conversation won’t turn to a wealth management referral, he says, until the participant makes it clear they want a deeper dive into their finances and assistance managing them.

“It’s them asking,” he says. “When it happens, they’ll ask, ‘do you help individuals or help families?’”

Start Skinny, Build to Full

Treichel says one example is firms offering a “skinny” financial plan for in-plan services, and if participants want a “full financial plan” they are offered individual financial services outside of the plan with a separate agreement. 

“When conversations turn to wealth management conversations, this generally includes more comprehensive discussions about outside assets, inclusion of a partner/spouse in the discussions, conversations related to tax and estate planning, etc.,” she says.

Good firms, however, will not leave such changeovers to chance. Treichel recommends a one-page disclosure that advisers provide when giving in-plan advice and education that makes it clear the agreement is for plan education around areas such as accessing the recordkeeper’s website, setting up beneficiary designations, discussions about savings and deferral rates or guidance on accessing an off-the-shift planning tool that aggregates outside assets.

Then, when “making the leap over the fence to wealth management,” the adviser should provide the participant with a separate agreement with the appropriate disclosures, and already “blessed by the plan sponsor.”

Traditional thinking notes that, as more people retire with the bulk of their savings in a defined contribution plan, they’ll likely be searching for more in-depth individual advisement and be willing to pay a fee.

But another push toward more wealth management services comes from the increased complexity of retirement savings and employee benefits over the years as firms complete for talent, says Chris Karam, managing partner and CIO for Finspire.

Karam notes that some managers may have their 401(k), a nonqualified deferred compensation plan, a health savings plan or even a separate defined benefit plan to manage. In these cases, participants may be seeking individual financial advisement in their 50s.

“If you are making decisions about complex plans you are probably going to want to engage [with a financial adviser] a little bit sooner,” Karam says. “You want to optimize the use of those plans for your future, and we’ve noticed that people often need help in those types of arrangements.”

Meanwhile, for those who are nearing or in retirement, there will generally be a demand for guidance on decumulation, retirement income and even Medicare and Social Security, which can add another layer of complexity for everyone.

“These issues are often more universal in nature and people are often confused and have questions about them,” Karam says. “That’s why we are looking to do more for all of our plan participants around these areas as well.”

Engage First

Chris Weirath, senior vice president, head of business development and client success for Morningstar, notes that many participants aren’t engaging with education or advice through the plan to even know they may need more services. That’s why her team is focused on using data and technology to try and get to participants when they’re having life events that may require help.

“You have to make sure you are targeting and communicating with the participants where they are at,” she says. “You’re then coming to them to address a particular situation with targeted messaging that makes sense to them.”

Weirath notes that getting in front of a participant after they’ve gotten married, bought a home or experienced some change to their plan is more likely to catch their attention and spark engagement—whether that leads to plan education engagement or potentially a wealth management referral, will depend on the circumstances.

The more advanced data and communication get, however, the greater the need for transparency from advisory firms who are offering wealth services.

“Clear is kind,” says Treichel. “When advisors can be clear from the beginning, it will protect them from a compliance and legal standpoint but also it will help their clients to understand what hat they are wearing.  Advisers should not be afraid to charge a fee for their services and be clear that there will be a fee for wealth management services – but it shouldn’t be a surprise later.”