Looking Ahead

Retirement plan advisers are frequently looking for ways to make the future better—not just for themselves, but for everyone. This includes plan participants, because “helping participants prepare for and enter into retirement is what we do.” Advisers also want to assist plan sponsors by helping them with plan design, plan administration and the new catch-all phrase “retirement plan-efficiencies.”

Today, the phrase plan-efficiencies encompasses almost everything plan-related: plan design, matching formulas, an appropriate investment lineup, risk management, target-date fund structure, behavioral finance and the list goes on and on. Even 408(b)(2) could be the poster child for plan efficiency. (Just the final regulation—not the effective date, as that date has now once again been pushed out a little farther into the future!)

Retirement Plan-Efficiencies 

As advisers continue to espouse what they can bring to the plan sponsor and what they are able to deliver to the plan participants, the industry becomes more mature and the workflow more process-oriented. The end result is a well-oiled engine that delivers plan-efficiencies to the next generation of retirees.

However, many parties are now involved in these plan efficiencies. As strategic partners (both up and down the adviser-food chain) make every correct move, every prudent decision and execute their tasks flawlessly, one shrewd plan sponsor or trustee might posit, “For what purpose do we need an adviser?” Or, if said directly to the adviser, “Why do we need you?”

The Plan Sponsor Creed  

That question is asked of the adviser because this is what the plan sponsor or trustee believes:

Our funds are positioned well, we monitor the performance quarterly and our investment policy statement directs our investment-related activity. We can subscribe to the databases much less expensively than we can hire you, Mrs. Adviser.

Eighty percent of our participants’ assets are resident in either target-date, stable value or index funds .

The recordkeeper you told us to hire keeps our participants well-educated in regard to investments. (Remember, as the plan adviser, in most cases, you are not permitted to offer advice to our folks who sorely need advice.) Sometimes our recordkeeper even gives them advice (since they are not restricted from or authorized to do so).

For plan design, we will wait and see what the next generation of behavioral science tells us to do (based upon the sale of jam or some other groundbreaking analysis).

We no longer believe there really is anything like this 408(b)(2) you have been preaching to us over the last four years. It is a good idea to have all “fees disclosed,” but we will believe it when we see it.

The Adviser’s Next Step 

If after reading the above Plan Sponsor Creed, your first thought is, “We did receive the final language from the Department of Labor concerning
408(b)(2),” then you are in deep trouble.

Retirement plan advisers can represent a strange lot. I think of an article I read recently, which stated that many advisers who invoice their clients based upon a percentage of assets are considering the implementation of a minimum annual or quarterly fee. It seems that since the mortgage meltdown of 2008, plan balances have not grown sufficiently to sustain the payment-stream of the adviser. So, instead of growing market-share to make up for that imbalance, the retirement plan advisers of today prefer to re-work the fee schedule to one which better fits their own needs and wants. This is being considered in the absence of adding services to the client or favorable outcomes to the participants.

I frequently take a strong position on an adviser’s need to maintain and increase fees; however, doing so with no real or perceived value being delivered to the client is just another stake through the heart of our industry. It will only reinforce the questions of your value from the plan sponsors and trustees.

Steff C. Chalk is CEO of the Fiduciary Consulting and Governance Group, Inc., a fee-only fiduciary consulting practice ­serving corporations and nonprofits. A judge for the PLANSPONSOR Retirement ­Plan Adviser of the Year award, and a faculty member of the PLANSPONSOR Institute, he is also the ­co-author of How to Build a Successful 401(k) and Retirement Plan Advisory Business.