PLANADVISER National Conference

Doll Says Economy’s Vital Signs Are Good

Although he was predicting “growth below trend,” BlackRock Chief Equity Strategist for Fundamental ­Equities, Robert Doll, told those at the PLANADVISER National Conference that the “vital signs of the economy are reasonably good.”

Although the decline of 18% this summer feels painful, Doll said, it is on par with the 17% decline last summer. The reason it feels worse this year is because 11% of the decline came on three consecutive trading days. “We’re not living through anything we haven’t lived through before,” he said.

There have been 30 declines of 15% or more in the S&P 500 since the Great Depression, Doll said, and only two of those times predicted a recession. While this could be the third time, Doll said that he didn’t believe it would be. Increasingly, he noted, the phrase “don’t confuse the U.S. economy with the U.S. stock market” is appropriate.

Doll pegged the probability of the U.S. going into a recession now at 30%, compared to a normal probability of 15%. The reasons Doll cited: Unemployment claims are steady; bank lending is moving up; credit card delinquencies are down, with personal debt levels falling noticeably; and corporate debt levels are down as well.

Recessions are driven by housing and autos, Doll said. Of those two sectors, “we’re currently building new homes at less than half of population growth…and are making cars at three-quarters the rate of population growth.” When “you’re already down,” Doll noted, “you can’t tank.”

In fact, he said, the vital signs of economy are reasonably good; the mortgage problem is “slowly moving to the back burner,” and the corporate sector is in “fantastic shape.” Although he noted that his prediction was for “growth below trend,” he said growth in the second half of 2011 will likely not be as weak as bonds or stocks have priced in.

Doll presented six ideas, saying, “if just a few of these come true,” the U.S. will see 2% growth: less pain at the pump; global supply chain disruption from Japan earthquake fading; pace of deleveraging slowing; plenty of pent-up demand (auto sales below population growth; housing starts less than half of what is needed to keep up with population growth; business equipment and software); labor market recovery (some improvement in initial unemployment claims; growth in average workweek; modest nominal wage growth; profitability rates high); and fiscal restraint likely to be only modest drag over next two years. —Alison Cooke Mintzer

Keeping up with DC

Ahead of the announcement from the DoL that it will re-propose its rule on the definition of fiduciary, Michael L. Davis, Deputy Assistant ­Secretary, U.S. Department of Labor, told conference attendees that the DoL was trying to clarify the Employee Retirement Income Security Act (ERISA) definition of a person giving investment advice for a fee and what he described as the very restrictive five-part test. He said new guidance would be coming early next year.

Davis talked about efforts related to target-date funds (TDFs) and said the DoL would be issuing guidance for fiduciaries about due diligence in the selection of TDFs—what to look for and what questions to ask. He said the DoL doesn’t want to get in the way of innovation, but believes investors should understand glide paths.

On lifetime income options for retirement plans, Davis explained that there is not a lot of political backing for bringing back defined benefit plans, but there is a desire to carry over attractive traits of DBs to defined contribution plans. The DoL received more than 800 comments to its request for information (RFI) on lifetime income. The agency is working on rules for participant benefit statements translating account balances to monthly payments in retirement—whether the calculation should use the current account balance or a projected account balance. The Department is also considering guidance about the selection of annuities.

Regarding fee disclosure regulations under 408(b)(2), Davis told attendees that the DoL is still working on guidance for how to do the summary document and looking at the treatment of rollover advice. Davis said he is not sure of the timeline yet for more guidance and he couldn’t comment on whether the final regulations would be much different than the interim final regulations. —Rebecca Moore

The Commoditization of the Retirement Plan Adviser

With fee disclosure rules leading many to predict fee compression for advisers, how can you justify charging more than the average? Three panelists tackled this question and discussed how retirement plan advisers can continue to be profitable even as fee compression becomes more and more of a reality.

J. Fielding Miller, Chief Executive Officer at CAPTRUST Financial ­Advisors, said this is “as good a bull market as you can have in terms of being a retirement adviser.” Miller said it’s a huge advantage to be specialized in this field, especially in the mid-size market where more plan sponsors are going through a formal RFP process than ever before. This is creating a huge demand for specialists, he said, and nonspecialists can’t fake it anymore.

The question panelists were asked to answer then was how can advisers position themselves to prove their value proposition is worth more than the “lowball” pricing?

Joseph Lee, Head of Defined Contribution Advisor-sold Distribution at BlackRock, pointed out that a lot of it is perception. “[Plan sponsors] think it’s been free. Once they become aware that there is a price [for retirement plan administration and services], they’ll look more closely at what services are being given to them. They’ll be able to compare services, and you can offer measurable statistics, success rates, and results.”

The battle for advisers in pricing is in the pitch, said Miller. If people are lowballing the fee, “you don’t want to get knocked out before you get to the finals,” he said, adding that you have to get the value on the table early.

It’s more than just investment due diligence, added Bill Chetney, Executive Vice President, LPL Retirement Partners. That used to be the sole topic of conversation, but a better approach would be to present yourself as the intermediary between the plan and all the providers—ERISA counsel, investment managers, etc.—“be the interface to create efficiencies; offer yourself as a comprehensive solution,” he said.

Miller also pointed out one possible pitfall: “If you’re doing your job really well and things are running really smoothly, you’ll have to remind the client that it didn’t happen by luck. You might want to go in there and re-sell yourself and re-show the value, in case someone comes in there with a lowball rate.” An adviser has to find the “happy medium” between staying on the sponsor’s radar and not being a nuisance.

However, Chetney said existing plans don’t pose as much of a problem as getting new clients can be. Existing clients tend to know what value an adviser is adding, whereas a prospective client has no idea. —Nicole Bliman

What’s in Store for the Retirement Plan Industry?

A panel of industry experts at the PLANADVISER National Conference discussed where the retirement industry stands and what is likely to be coming in the near future.

Paul Ballew, SVP, Customer Insights and Analytics for Nationwide, said the industry is currently in the most unique market environment in seven decades, and advisers will have to help clients navigate this environment, probably for the next decade, as it takes time to heal structural imbalances. He noted that this environment has a significant impact on the retirement savings market; for example, it already has brought about many private pension reforms.

However, Ballew said this is a great opportunity for advisers if they are able to come up with unique solutions and sell those to clients. He predicts the industry will outperform the general market by 2% to 2.5%, but advisers will have to employ a different business model with more value-added services.

Phil Fiore, SVP, Institutional Consulting, FDG Institutional Consulting Group—UBS, contended that advisers need to change their focus from developing good products to looking at participant outcomes and educating participants. Ballew added that he predicts more advisers will specialize in the retirement plan market, but they will need a level of expertise in markets and a focus on participant education and calming fears.

Fiore said advisers must be bolder with plan sponsors about their approach and assumptions about their retirement plan program; for example, the fear of reaction from participants if they adopt auto-enrollment.

Edward O’Connor, Managing Director, Morgan Stanley Smith Barney, concluded that, at the end of the day, it’s about access and participation; advisers should distill measures of plan success to participant replacement rates. In addition, said Fiore, recordkeepers need to change what they tell participants. Statements should show their balance converted to monthly payments. —Rebecca Moore

Quarterly Review

How can advisers add value to quarterly meetings with retirement plan committees?

Speaking on a panel at the PLANADVISER National Conference, Chuck Williams, Managing Director, Sheridan Road Financial, suggested having a meeting at the beginning of the year to discuss how the plan will be better at the end of the year. Also, advisers should try to use a different theme or topic at each quarterly meeting to avoid having the same meeting every time. For example, the themes could be investment benchmarking, plan health, plan design, and regulatory updates.

Paul D’Aiutolo, Institutional Consultant, UBS Financial Services, said it is essential to align current events with the client’s plan. He recommended advisers provide sponsors ahead of time with the issues that will come up at the meeting. 

Williams added that, in the meetings, advisers should review prior meeting topics, review the timeline of things that need to get done, and identify what to do before the next meeting. Williams also said sponsors often want to discuss whether they are meeting their fiduciary responsibilities, and they are also getting increasingly into budget discussions and how to cut costs while making the plan valuable to employees.

Chris Simmons, VP, National Sales Manager, Intermediary Distribution, Neuberger Berman, told attendees that plan providers should be available to attend one meeting or more during the year.

D’Aiutolo explained that the main purpose of including the provider in the meeting is to match provider tools to sponsors’ needs. The adviser and sponsor also should discuss plan design with the provider and whether it is solving income replacement needs for every employee.

D’Aiutolo said UBS has a three- to four-page executive summary on how investments are doing to share with plan sponsors. It also shows results of employee education and a fee comparison.

To keep things fresh, D’Aiutolo said to make the meeting as personal to the plan as you can. Relate the information to the effect on participants within five years of retirement, for example. Also, advisers should talk to the committees about whether the adviser can consult one on one with participants.

Williams noted that a lot of information now is provided to sponsors electronically. It saves time and is “green.” —Rebecca Moore

Business Development for the Next Decade

Is social media the next step in marketing? Or is it a means to connect with participants?

The idea of using social media to grow a retirement plan advisory business was the focal point for a panel moderated by John Wilcox, an adviser with Mayflower Advisors, with panelists including George Revoir, Senior Vice President – Distribution, John Hancock Financial Services, and Fred Stewart, Managing Director Southeast Region, Portfolio Evaluations, Inc. The “Business Development for the Next Decade” discussion analyzed LinkedIn, Twitter, and Facebook, as well as aggregator sites such as HootSuite.

The fact is, social media as a tool for business development is still in its infancy, the panelists said; it can go in several different directions over the next few years. However, if someone can start a revolution and overthrow a government using Facebook, surely an adviser can sell a 401(k) plan using the medium?

Advisers are still largely hesitant to use social media on a regular basis. Only a handful of attendees said they are on Twitter, about half have a Facebook account (but less than half have a Facebook account for their business), and most attendees have a LinkedIn profile. When Revoir saw how few advisers had a Facebook page for their business, he asked them, “If every Fortune 500 company is on Facebook, why shouldn’t you be?”

Revoir said LinkedIn is not being used to its fullest potential by many advisers. The average age of a LinkedIn user is 41, he said. You probably won’t connect with participants on the site, but it’s a great place to network with plan sponsors. Stewart pointed out that the potential for referrals—always a key to growing an advisory business—is a fantastic function of LinkedIn. Sponsors are talking to other sponsors on the site, and advisers can easily bring themselves into that conversation.

Every business has a Web-based reputation, whether you intend to have one or not, the panelists said. When a sponsor is researching different advisers, your online presence can make a huge difference: Does your business just have a static Web site? Or is there a vibrant LinkedIn profile or links to thought-provoking articles posted on Twitter?

No one can control their entire online reputation, noted Stewart; it’s one of the intrinsic risks to using social media. The panelists agreed that it’s better to have a presence online than have none at all, and the more present you are, the more able you are to control the message.

Several advisers in the audience said their biggest problem with social media is the amount of time it takes to maintain an online presence; by the time everything is updated, it can be easy to forget about the “real work” that needs to get done. The panelists recognized this as a potential problem—getting “sucked in” so to speak. Yet, if having a strong brand is important to you (and it should be, they said), the time it takes will be worth it in the long run. —Nicole Bliman

Dual Purpose

All signs are pointing to the registered investment adviser (RIA) model for where the retirement plan advisory business is going.

Describing his few remaining commission-based plans as “historical” and “lingering on,” Al Hammond, Institutional Consulting Director, Graystone Consulting, said working in an RIA model allows for easier entry into new plan sponsor clients.

Hammond was joined by Thom Shumosic, President, Rockwood Financial Group; Manuel Rosado, Vice President, Spectrum Financial Advisors, Inc.; and Matt Gulseth, Partner, Channel Financial, on a panel discussing how to successfully be an RIA at a wirehouse or broker/dealer.

“It’s going to be harder and harder for you to compete in the marketplace when you’re going up against RIAs that can bring up the word fiduciary and different services and include education and advice—versus folks on the B/D side that are not really taking that step to educate the plan sponsors on the difference between advice and education,” commented Rosado.

Hammond pointed out how the field has changed in recent years: “About eight years ago, we would throw it out there as a marketing point, but sponsors didn’t understand it then. Now it’s the entry point; I’m an RIA and will have fiduciary liability.”

The panelists also touched on which sponsors are typically more drawn to the RIA model than others.

“It really depends on the corporate structure [of the client]. When you have an HR team, rather than one person running HR, that has processes and an RFP and want to start documenting things, then it’s more likely they’ll want an RIA, versus one person who might pick up the phone to see who his brother-in-law knows,” said Rosado.

It also depends on the number of employees, said Hammond. Once a company has at least 20 employees, they typically have an HR department with structure.

It was asked if the asset level makes a difference for the sponsor’s needs. Shumosic said a plan of $10 million seems to be a “magic number,” but his firm decided to start bringing even plans of $2 million to the fee-based RIA model. “A $2 million plan will become $5 million, then 10, so let’s deal with the conversion now,” he said.

As for the ease of making that conversion, Gulseth said it depends on the recordkeeper and sophistication of the platform. “Some RKs understand it and say let’s levelize this, but it’s been a top-down model. It could be as simple as signing a new document and you’re ready to roll; in others, it can be more work, but it’s because of the provider, not internal obstacles,” he added. —Nicole Bliman