Compliance February 28, 2020

The Obligation to Save Social Security

With the recent passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, advisers and other retirement plan service providers have an opportunity to build on their successful lobbying effort.
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Art by Julie Benbassat


According to the most recently released financial status report from the Social Security Board of Trustees, the combined asset reserves of the Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds are projected to become depleted in 2035.

Notably, that date does not represent the time when Social Security assets would be wholly depleted. According to the Social Security Board of Trustees, approximately 80% of benefits would still be payable at that time.

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The report projects that the total annual cost of the federal retirement income program is projected to exceed total annual income in 2020—for the first time since 1982—and remain higher throughout the entire 75-year projection period. As a result, asset reserves are expected to decline during 2020. At the same time, Social Security’s cost has exceeded its non-interest income since 2010.

Given such figures, advisers should strongly consider adding Social Security advocacy to their political activities, industry leaders suggests.

“The anticipated depletion of the Social Security Trust Fund by 2035 begs the question, how will Americans retire? Comfortably and on our own terms? Or without adequate savings, putting pressure on families, the government, and the economy?” asks David Musto, president of Ascensus. “That answer depends on decisions that demand action today. Though it lacks the emotional pull of a partisan soundbite, retirement security is a topic that both sides of the aisle agree needs greater attention and innovation.”

With the recent passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, advisers and other retirement plan service providers have an opportunity to build on their successful lobbying effort. Currently they are turning their attention to a piece of legislation known as the Retirement Security and Savings Act, proposed by Senators Rob Portman, R-Ohio, and Ben Cardin, D-Maryland.

Of the many provisions that would make changes to employer-sponsored retirement plans and individual retirement accounts (IRAs), the industry is keen on an additional catch-up provision that would permit those older than 60 to save an additional $10,000 each year in their 401(k) plans. Another provision would provide for the indexing of IRA catch-up contributions, which are currently set at $1,000 and do not change—unlike other limits that are indexed for inflation. The law would also make two changes to “SIMPLE IRA” plans that many in the industry think are steps in the right direction. The first would permit employers to make additional contributions on behalf of workers, and the second would permit these plans to offer Roth contributions.

While the law includes other popular provisions that will help improve average Americans’ long-term financial outlook, such as the linking of student loan repayment programs and 401(k) plans, it does not address the financial issues faced by Social Security. According to Ric Edelman, the chairman and co-founder of Edelman Financial Services as well as a vocal Social Security reform advocate, now is the time to address the program’s financial stability—“before it is too late.”

He proposes advocacy can start by simply addressing the misconceptions that exist among voters and the public about Social Security. For example, Edelman points out that Social Security was never in fact “self-funding” without the significant input of annual federal tax dollars. Current workers and employers pay substantial taxes—more than 12% annually between them—and their money is given to current retirees. For many years, Edelman explains, more money went into the system than was paid out, and the excess went into a fund for future use.

“But in recent decades, the demographics have shifted; we now have fewer workers and more retirees,” he explains. “As a result, the amount collected in taxes is insufficient to pay the retirees—so the money in the piggy bank is being used. … The designers of the program in the 1930s didn’t anticipate this problem, partly because they didn’t project that life expectancies would be lengthening the way they are. A new approach is therefore needed.”

Edelman personally advocates for a new framework to build upon Social Security’s foundation, called the Trust Fund for America (TFA). The TFA would essentially be funded by a one-time, $7,000 contribution made on behalf of all babies born in the U.S. for the next 35 years. Edelman stresses that any real solution will likely have to come from a blue-ribbon panel appointed by the president and backed by Congressional action, but he believes a simple approach like the TFA could garner enough support to actually fix this monumental problem.

While the task is an important one, it will obviously be a big challenge to make progress on such a politically charged topic as Social Security, especially during the late end of the presidential election cycle. In fact, while during President Trump’s final State of the Union Address of his first term, he pledged to seniors that he would protect Social Security and Medicare, he has also gone on the record saying that cuts to those programs are under consideration.

Practice Management February 26, 2020

Your Clients Can Expect More Testimonials and Solicitations

The U.S. Securities and Exchange Commission’s set of proposed advertising regulations give advisers and their representatives much more leeway to tell their story to prospective clients.
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Art by Jun Cen


The U.S. Securities and Exchange Commission (SEC) has proposed amending its rules under the Investment Advisers Act governing advertising by registered firms and advisers.

The proposed amendments, which were announced on November 4, would alter Rule 206(4)-1 under the Advisers Act, colloquially referred to as the “Advertising Rule,” and would be the first substantive amendments to the SEC’s treatment of this topic since the rule’s adoption in 1961, says Ethan Corey, a partner with Practus LLP. Specifically, Corey says, the new rules would allow advisers to run testimonials in advertisements and permit them to include performance-based information, subject to some restrictions.

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According to an analysis published by a team of attorneys at Stradley Ronon, the proposed amendments relating to the advertising rule “are numerous and substantive, and go well beyond mere updates.” For example, the proposed rule significantly expands the definition of “advertisement” to include online communications, third-party communications disseminated “by or on behalf of” an adviser and private fund marketing materials. As noted, the updated advertising rule also permits the use of client testimonials, non-client endorsements and third-party ratings, subject to certain enumerated conditions.

Corey says the related proposed amendments to Rule 206(4)-3 under the Advisers Act, i.e. the “Solicitation Rule,” would also be the first substantive amendments to the Solicitation Rule since its adoption in 1979.

“These amendments would replace a plethora of SEC staff no-action letters that have been issued as investment advisers’ advertising and solicitation practices have increasingly diverged from the advertising and solicitation landscapes that faced the SEC at the time that it adopted the advertising and solicitation rules,” he explains.

When the old advertising and solicitation rules were put into place, Corey notes, personal computers, the internet, satellite radio, smartphones, tablets, social media, podcasts and streaming services did not exist. Today, these are primary forms of communication.

With respect to the solicitation of testimonials, Corey says, information is considered to have been disseminated on behalf of an investment adviser “if a third party posts information about an investment adviser where the adviser has involved itself in preparing the information or has explicitly or implicitly endorsed or improved the information.”

Corey says that the best thing about the proposed new rule “is that it would get rid of the absolute ban on testimonials and on past specific recommendations.” However, he says, it is concerning that the SEC will seemingly allow advisers to actively solicit and filter testimonials from their clients.

“That could open the door to sleazy or unethical advisers to try to generate endorsements from people who are not representative of an average client,” Corey says. In his view, the SEC should also ban paid testimonials.

Chris Hooper, director of seminar services at M&O Marketing, which specializes in helping investment advisers and insurance salesmen market their services, says permitting testimonials can be invaluable for advisers.

“Think of all the online retailers trying to market wares on Amazon and get a five-star rating,” Hooper says. “Consumers are becoming increasingly sophisticated. Just having a website with a nice logo isn’t enough to attract business. Testimonials are a great way to communicate.”

The best way for advisers to get started, in Hooper’s opinion, is to hire a digital marketing firm and to find out if that company can help them target their audience. For advisers looking to find potential plan sponsor clients, social media, namely online digital advertising on LinkedIn, is the best avenue, he says.

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