ACA Driving a Focus on Retirement Plans

Small business owners are looking at retirement plans to replace health benefits as an attraction and retention tool.

An overwhelming majority of small business owners (SBOs) believe that the country is in the midst of a retirement crisis, according to an online study, commissioned by Nationwide and conducted by Harris Poll.

The survey found that 84% of SBOs believe American workers are facing a retirement readiness crisis. However, 60% of SBOs believe that their own employees are on track to retire. Nearly two-thirds (63%) of SBOs say it’s important for a business owner to provide retirement benefits, but, in reality, only one-third (34%) of them offer these benefits to their employees.

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However, of the SBOs who offer retirement benefits, including 401(k) plans, to their employees, 67% say they plan to increase their company contribution to employees. Of the SBOs who do not currently offer retirement benefits, 30% say they plan to offer these benefits in the future.

If that happens, Nationwide notes, then more than half (54%) of SBOs will offer their employees retirement benefits.

A positive economic outlook is a driving force behind this. Half of SBOs who plan to start offering retirement benefits say they will do so because they expect sales or revenue to increase in the next 12 to 24 months (50%), and 32% believe the U.S. economy will improve in the same time frame.

Small business owners who currently offer 401(k) plans and say they will increase contributions have an even more positive outlook: 56% expect company sales or revenue to increase in the next 12 to 24 months, and 53% believe the U.S. economy will improve in that same period.

NEXT: ACA driving a focus on retirement benefits

Of SBOs who plan to offer retirement benefits in the future, 25% say the Patient Protection and Affordable Care Act (ACA) has made health benefits less attractive to employees, and 18% say the ACA has decreased company health care costs. Of SBOs who plan to increase company contributions to their employees’ 401(k) plans, 33% say the ACA has made health care benefits less attractive to employees, and 30% say the ACA has decreased the company’s health care costs.

“Lower health care costs means small business owners have the option of contributing more to their employees’ retirement,” says Joe Frustaglio, vice president and leader of private sector retirement plan sales at Nationwide.

As the ACA makes health care benefits less relevant to small business employees, there is mounting evidence that business owners are turning to retirement plans to recruit and retain employees.

According to the survey, among SBOs, 59% disagree that retirement benefits are not important for attracting and retaining employees. More than two in five (42%) SBOs who said they plan to increase contributions agree their company’s 401(k) plan is now more important for attracting and retaining employees as a result of the ACA. Similarly, nearly one-quarter (24%) who will offer retirement benefits in the future say their company’s 401(k) plan is now more important for attracting and retaining employees because of the ACA.

The 2015 Small Business Owner Study was conducted between June 8 and June 19, 2015, among 500 U.S. small business owners, defined as companies with less than 300 employees.

Rep-as-Portfolio Manager Approach Keeps on Growing

The adviser-as-portfolio manager approach to client service can be a real differentiator, but it can also hamper a firm with significant liability and serious amounts of legwork. 

A new report from financial research and analytics firm Cerulli Associates explores the increasing popularity of “rep-as-portfolio-manager (RPM) programs,” through which advisers take a step beyond recommending asset allocations and general investment strategies to actually take full discretion over client assets.

According to the February 2016 U.S. Edition of The Cerulli Edge, an increasing number of advisers who have previously outsourced portfolio management to home office consulting groups or another third party are reasserting direct control of client accounts. The trend is especially prevalent looking back to 2008 and the financial crisis—a time that left many advisers and their clients feeling like they couldn’t execute decisions fast enough, in part due to crushing trade request volumes submitted to home offices.

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The primary goal for advisers taking this path, Cerulli explains, is that it permits a more timely and nimble response to clients’ changing risk profiles, especially in a market setting marked by significant volatility. Tom O’Shea, associate director at Cerulli, observes that advisers widely view flexibility as the No. 1 reason for using RPM platforms, with more than 67% citing flexibility and control as the major factors.

One implication of the trend is that more than half of advisers plan to increase their use of managed account platforms that give them discretion over their clients’ allocation to mutual funds, exchange-traded funds (ETFs), and other investments. Cerulli’s research also finds the “changing landscape of investment discretion” is forcing asset managers to rethink their distribution strategies, especially adviser-mediated strategies.

Also important to note, the marketplace for RPM services seems to be converging around a two-pronged approach in which broker/dealers offer either full or partial discretion to advisers, depending on the investment research and due diligence bandwidth the adviser can bring to the table. “Discerning the type of RPM discretion an adviser exercises is critical to the wholesaler’s effectiveness in the field because it will point the salesperson toward the gatekeeper they need to influence,” O’Shea explains.

O’Shea further predicts asset management firms will start to “focus their attention on helping advisers understand how their products complement an adviser’s portfolio construction methodology … Advisers have graduated from selling products to building client solutions, and asset managers need to demonstrate what kind of building block their product is.”

Information about purchasing this and other Cerulli research is here.

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