Workplace and Retail Advice Should be Complementary

Art by Tim Bower

Nathan Trotman, an area vice president at Gallagher, a retirement plan consulting company in Illinois, says the availability of retirement advice in the workplace makes the idea of planning for the long-term financial future less daunting.

According to Trotman, this is certainly true for workers lower down on the income scale, who are unlikely to be working with financial advisers outside of the workplace. But it’s also true for the highly-compensated employees who more often have their own sources of “retail” advice outside of work.

“Studies have shown that the more advice people get, the more apt they are to save and the better position they’ll be in when they retire,” Trotman says. “As we start to move up to the higher-income workers, they will more often utilize the workplace advice to get a second opinion.”

A recent Hearts & Wallets survey found retail advisers more often consider individualized financial and wellness goals with their clients, and they are more likely than workplace retirement plan advisers to have expertise on taxable brokerage accounts, contributory individual retirement accounts (IRAs) and rollover IRAs. Workplace advisers, on the other hand, will typically focus on maximizing the use of defined contribution (DC) plan accounts, though some are able/willing to provide broader guidance to participants.

Laura Varas, president and CEO of Hearts & Wallets, agrees that workplace and retail advice can and should work together. This is especially important for Millennials, as more in this generation are opting to invest in taxable brokerage accounts, she says.

“People should have a variety of account types,” Varas says. “That’s the behavior that we see most often leads to success. The most successful savers direct some of their resources into retirement accounts, and save some in their brokerage.”

Trotman suggests plan sponsors with concerns about the utilization of advice resources by workers could consider running some mandatory education sessions. Even in the case that higher-income workers have their own primary sources of advice and investments, they may be able to access different capabilities through the retirement plan adviser or provider than they can get in the retail space. Additionally, the combined buying power of DC plans can help deliver lower cost products and solutions to participants, which retail advisers or brokers can’t always match.

“The workplace advisers must do a better job at explaining their value,” Varas adds. “If a product or tool is given to a plan sponsor by a 401(k) provider at no cost, participants should know why that is so. This builds a trust between participants and plan sponsors, while creating transparency. Failing to do this may lead a participant to prefer advice on their own terms, therefore electing guidance outside of the workplace.”

Varas and Trotman agree that the best practice here is when the adviser in the workplace understands where and when it makes more sense for an employee to shop for retail service on his own.

“They should be able to explain that the workplace advice can take you to a certain point, and from there on out, the participant may want to contract a service provider on their own,” Varas concludes.