In Practice November 18, 2022

Expert Panel: Today’s Retirement Plan Advisories Require Specialization

An evolving small business market, increased regulation, and shifts in client needs all lead to more specialized retirement plan advisement, according to a panel held by American College.

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As financial planning matures, retirement plan advisers will benefit by either working with a team of specialists, or learning about areas their clients’ areas of concern, according to a panel held Thursday by the American College of Financial Services.

In the current retirement landscape, a small business client may look to their adviser for areas ranging from wealth management to insurance needs to succession planning, said Heather Welsh, a comprehensive financial planner and wealth planning department leader with Sequoia Financial Group. An adviser isn’t expected to be an expert on everything, so should look to partner with those who have the knowledge she does not.

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“You have to subjugate your ego,” Welsh said on the webinar. “When you sub-specialize it’s not your client, or my client. It’s about getting the best team together to meet the needs of the client.”

Client requests for more than just retirement planning has been a theme since the pandemic and Great Resignation have led to changes in the workplace. Meanwhile, as much as 74% of small businesses still do not offer a retirement plan for employees, according to a survey by ShareBuilder 401k, leaving plenty of room for adviser engagement.

Welsh said it’s important that when a client has a question on something like retirement income, that they can get on the phone with the “right person.” That means either an adviser has to be skilled in a certain area, or that there’s a team member to turn to for help.

“It’s a consolidation of expertise,” she says. “Not everyone has both the client-facing skills and also a deep knowledge for all the range of different client types.”

New or proposed legislation, which has ramped up in recent years, has also created the need for further specialization, according to the panelists. That includes areas like the tax code for small businesses, said Michel Finke, professor of wealth management at American College.

“It’s an evolution that advisers need to adjust to, and it’s very complicated,” he said.

Finke also noted that when advisers can provide specialization in areas ranging from investing to college saving to estate planning, it can lead to stickier, longer-lasting clients.

Terry Parham, chief financial officer and financial planner with Innovative Wealth Building, said many of his clients run their own businesses while acting part time, or are working in multiple jobs. That has required the Los Angeles-based adviser to gain educational expertise in a variety of areas, with more learning to come, he said.

“On the retirement income side everyone is going to ask about Social Security, they’re going to ask about Medicare,” he said. “But many advisers may not know about those issues. You have to get smart on those basic things.”

When advisers are working with a small business, they need to be aware of how their recommendations will impact the company’s cost of doing business in the long run, said Scott Winslow, a managing partner with Nabell Winslow Investments & Wealth Management.

“You give yourself a lot of credibility when you explain what you’re doing and how it’s not going to effect the cost basis of a business,” Winslow said.

Winslow, who has a boutique advisory firm, says he works with partners to provide holistic retirement planning to clients.

“We get together the best team possible so the client can look around the table and say ‘hey, they’ve got this covered,’” Winslow said.

 

The Markets November 17, 2022

Current Annuities Boom Still Likely Faint for DC-Plan Advisers

Annuity sales are on a tear in 2022, drawing interest, but potentially limited implementation from defined contribution retirement plan advisers and sponsors.

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A boom in annuities driven in part by locking in stronger returns may be creating more interest from defined contribution plan advisers and sponsors, but is not necessarily translating to actual in-retirement plan uptake, according to new research and the DC plan head of a retirement plan advisory.

The higher interest rate environment, coupled with a search for safety, has fixed and indexed annuity sales booming among financial advisers and clients, researcher and consultancy Cerulli Associates said in research released Thursday.

There is not currently good data on the sales of in-plan annuities, which in theory provide a pension-like income for retirees within a 401(k) or other retirement vehicle, Cerulli’s Donnie Ethier, head of the firm’s wealth management practice, said in an emailed response. Anecdotal evidence shows the retail annuity boom is at least creating interest for retirement plans, he said.

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“When we speak to advisers, some express interest, but many admit to not having made the recommendation or implementation,” Ethier said. “In the end, interest is growing, and I believe insurers are doing a relatively good job spreading the word and perfecting the positioning. Time will tell if adoption remains limited or gains greater acceptance.”

Annuity sales have been consistently breaking records this year as fixed-rate deferred and fixed indexed annuities provide both protection and strong returns due to higher interest rates, according to insurance association LIMRA. The trend has many reconsidering what some see as the future of retirement income, but others as a potentially complex and pricier way of locking in a guaranteed paycheck.

In practice, plan sponsors and advisers have been more aware of in-plan annuities after the regulatory environment became more permissive with the Setting Every Community Up for Retirement Enhancement Act of 2019, says Jennifer Doss, senior director and defined contribution (DC) practice leader at CAPTRUST Financial Advisors. That does not mean, however, that plan sponsors are asking for them specifically or implementing them once they hear about the offering.

“I wouldn’t call it high interest,” Doss says. “It’s higher than it was before, but I wouldn’t consider it a popular topic or something that we’re inundated with.”

Doss says their teams generally discuss in-plan annuities as part of a broader conversation about how to solve for retirement income options for participants. When they are discussed more seriously, it’s generally among larger retirement plans of $50 million in assets or more, Doss says.

“We go through a consulting process that is based on their needs, and ultimately a lot of times it lands with different options to solve for [retirement income] through different vehicles and solutions,” Doss says.

Options can include adding a managed account, providing financial advice options for participants or reviewing their target-date fund option to make sure it is right for people staying in the plan longer, she says.

In research put out in October, Cerulli addressed the disconnect between insurers selling annuities and plan advisers, noting “little overlap” between those who distribute annuities and those who service DC plans. The research showed that 48% of retirement plan advisers see “at least some value” in the in-plan annuity concept, while 31% saw “no benefit” and another 21% remained unsure.

Employee surveys about in-plan annuities does show that half would prefer a retirement plan mix of investment and income options like annuities, rather than traditional pensions or investments alone, according to a study from the Alliance for Lifetime Income’s Retirement Income Institute.

Ethier notes in his research that, while the current environment is creating demand, annuity providers should be cognizant of not engaging in a “rate war,” as over time the markets will stabilize.

“This means, despite renewed interest in the solutions and increasing sales, the challenges that insurers were facing prior to 2022 will persist,” he said.

Cerulli projects total annuity sales of more than $200 billion for each of the next five years, similar to sales achieved in 2021, the research said. Growth will be led by registered index-linked annuities, or RILAs, which are linked to a stock market index to provide chance for growth, but a cap on the downside making it potentially less volatile than a variable annuity. Boston-based Cerulli projects fixed annuities to be flat to down.

Doss, of Raleigh, North Carolina-based CAPTRUST, notes there are also many different types of in-plan annuity options, including through a Qualified Default Investment Alternative, a managed account or a TDF.

“We often forget that even within the in-plan annuity, there are many different ways to implement, depending on need,” she says.

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