HCEs Gain from Workplace Advice

Art by Haleigh Mun

Nathan Trotman, an area vice president at Arthur J. Gallagher & Co., a retirement plan consulting firm, 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 consult a financial adviser outside the workplace. But it is also true for a company’s highly compensated employees (HCEs), who often have their own source of “retail” advice unrelated to their job.

“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 that retail advisers—more often than workplace advisers—consider individualized financial and wellness goals with their clients, plus they are more apt 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 can and will give participants broader guidance.

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 that plan sponsors concerned about how their workers use, or do not use, advice resources could consider running some mandatory education sessions. Even if higher-income workers have their own primary source of advice and investments, they may access different capabilities through the retirement plan adviser or provider than they can get in the retail space. Additionally, the greater buying power of DC plans can help deliver lower-cost products and solutions to participants, which retail advisers or brokers cannot always match.

“Workplace advisers must do a better job of explaining their value,” Varas says. A failure to clarify what they provide may lead a participant to prefer advice based on his own terms, therefore electing guidance outside of the workplace and potentially paying excess advisory fees. Varas says a best practice here is for the workplace adviser to determine and communicate when the employee should seek retail service on his own.