In Practice September 20, 2022

PANC 2022: Participant Mindsets and Communication Strategies

Financial stresses increase the need for advisers to communicate with participants.

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Market volatility, the rising cost of living, fears of not having saved enough for retirement and concern about Social Security are among the financial topics weighing on the minds of retirement plan participants.

Knowing this can help retirement plan advisers connect with participants and provide valuable insights, according to speakers at the 2022 PLANADVISER National Conference in Scottsdale, Arizona.

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Retirement plan advisers may find themselves acting more as financial psychologists than financial advisers, because participants are stressed about the rising cost of living and market volatility, said Sean Kelly, vice president and financial adviser at Heffernan Financial Services, during a panel session titled “Participant Mindsets and Communication Strategies.”

Another panelist, Kelley Palmer, senior director of participant marketing at John Hancock, emphasized that U.S. households are feeling pinched. Even among households earning more than $250,000, 30% are living paycheck to paycheck and “stresses are across the board.”

As a result of growing fiscal stresses, retirement plan participants are looking for help making the most of their retirement savings, and advisers can use that information to increase and improve communications.

Palmer presented data showing that the share of employees seeking help with financial planning has risen consistently since John Hancock started tracking the topic in 2018 and is now at the highest level ever. Within this year alone, the share of employees that would like help with financial planning rose to 75% from 73%. Nearly 80% of people surveyed said they could use help choosing investments in the period between May and August, up from 76% in the first four months of the year, her data showed.

Kelly said when the stock market is volatile, it is important to encourage participants to stay the course with their investments. He recommended communicating with participants about the proximity in time of the worst days in the stock market to the best days. Sharing data from the early part of the COVID-19 pandemic, Kelly showed that some of the worst trading days of 2020 happened in February and March, while some of the best days were in March and April.

He said it is important to show that selling out in reaction to a bad day can cost an investor the opportunity to be in the market when it goes up.

“Time in the market is better than timing the market,” Kelly said, adding that it important to communicate to participants that “with market timing you have to be right twice,” when you sell and when you buy.

In addition to advice about markets, both Kelly and Palmer said that Social Security is an important topic to communicate about with plan participants.

Palmer said it is also important to provide participants help forecasting what their income will look like in retirement. Other topics she suggested for communication with participants included accessing expertise on estate planning, assessing financial wellness and identifying gaps, opening an emergency savings account and understanding educational savings tools.

The panelists also suggested that the topic of investing in a Roth, or after-tax, retirement account is a good one to engage younger participants, because their longer time to retirement means they could benefit from decades of tax-free growth on their investments.

Compliance September 20, 2022

SEC Risk Alert Addresses Marketing Rule Compliance Examinations

The SEC’s new marketing rule is set to take effect on November 4, and the agency’s Division of Examinations says it will be looking at whether policies and procedures “are reasonably designed to prevent violations.”

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On Monday, the Securities and Exchange Commission released a risk alert that provides the latest information about “upcoming review areas during examinations” related to its new marketing rule.

As of the November 4 compliance date, the alert says, investment advisers may no longer choose to comply with the previous advertising and cash solicitation rules, and any advertisements on or after that date will be subject to the marketing rule. Additionally, it notes that the SEC Division of Examinations is withdrawing certain staff statements related to the previous rules.

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Advisers should consider whether they need to update or revise their written policies and procedures “to ensure they are reasonably designed to prevent violations by the advisers and their supervised persons of the Marketing Rule,” the alert states. Investment advisers will also be required “to make and keep certain records, such as records of all advertisements they disseminate, including certain internal working papers, performance related information, and documentation for oral advertisements, testimonials, and endorsements.”

The risk alert, which is noted to represent the views of the staff of the Division of Examinations, says staff “will conduct a number of specific national initiatives, as well as a broad review through the examination process, for compliance with the Marketing Rule.” This will include, but will not be limited to, the following areas:

Marketing Rule Policies and Procedures

The alert says staff will review whether investment advisers have adopted and implemented written policies and procedures that are reasonably designed to prevent violations by the advisers and their supervised persons of the Advisers Act and the rules thereunder, including the marketing rule.

Substantiation Requirement

The staff will review whether investment advisers have a reasonable basis for believing they will be able to substantiate material statements of fact in advertisements, the risk alert states. The marketing rule prohibits advertisements that “[i]nclude a material statement of fact that the adviser does not have a reasonable basis for believing it will be able to substantiate upon demand by the Commission.”

Performance Advertising Requirements

The alert states staff will also review whether investment advisers are following performance advertising requirements in the marketing rule, including the prohibitions on including the following in an advertisement:

  • Gross performance, unless net performance is also provided;
  • Any performance results, unless they are provided for specific time periods;
  • Performance results of a subset of investments extracted from a portfolio, unless the performance results of the total portfolio are provided;
  • Hypothetical performance; or
  • Predecessor performance, unless other disclosures are made.

Books and Records

The alert states that the SEC has adopted amendments to the books and records rule and will review these requirements for compliance. Additionally, the agency has amended Form ADV to require advisers to provide additional information regarding their marketing practice and “reminds advisers of their obligations to accurately complete these questions in their next annual Form ADV amendment.”

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