2023 RPAY - Philip Sherman, Deschutes Investment Consulting

Business at a Glance as of 12/31/22

• Plan assets under advisement: $1.3 Billion
• Median plan size (in assets): $16.25 million
• Plans under administration: 80
• Total participants served: 37,430

PLANADVISER: Tell us about your practice and how you got into advising retirement plans.

Sherman: I was fortunate enough to join an established firm in the retirement plan advising and consulting space. Our founder, MacGregor Hall, started our firm in 1997, but has been involved in the retirement plan space since 401(k)s were in their infancy.  

I personally branched into this field when I made a mission-driven shift to find a firm that was committed to helping retirement plan participants build a successful financial foundation from the moment they were hired. My previous financial experience, working primarily as a wealth adviser and financial planner, was very rewarding. However, I experienced far too many meetings where an individual or family would come to us with the hope of retiring, only to find out they were behind in saving for the lifestyle they dreamed of in retirement. The knowledge instilled from my CFP training was fantastic, but the one thing this designation could not help me with was creating more time for these individuals. I began to pivot my approach in these meetings and help these individuals shift their attention from focusing on their personal situation to using their story as an example to help their children or younger family members learn.

After doing this for a number of years, I thought there had to be a better way to get in front of individuals at a point in their life where they still had time to make a difference. This is what ultimately led me to work with Deschutes Investment Consulting and retirement plans. This firm provided the access to help individuals who would otherwise never have access to work with a CFP or get the specialized financial education that so many of us are never taught.

PLANADVISER: As a retirement plan adviser, what do you take the most pride in?

Sherman: This would certainly be the education we are fortunate enough to provide for our plan sponsors and their employees. For better or worse, the financial industry has turned into a machine that focuses on helping the wealthy. As fees are paid via AUM, an adviser is incentivized to go after high-net-worth individuals as clients. This often leaves those who are most in need of financial coaching to figure things out on their own—which can make them susceptible to predatory practices or poor advice.

As a small, independent firm, we have the luxury to create custom, plan-specific content. Working with the plan sponsors to really get to the heart of what is the most important topic for their employees gives us artistic freedom to take our years of knowledge and boil that down into educational materials that anyone from the intern to the CFO can find value in. Our education is a direct representation of the work we do day in and day out, and if you don’t take pride in that, then I don’t know what you would!

PLANADVISER: What challenges do you think the retirement plan industry faces and what role do you have in addressing and confronting those challenges?

Sherman: First, let’s acknowledge how far the industry has come and some of the positive changes the SECURE Act and SECURE 2.0 Act have brought forth. Some of the really promising provisions were making plans easier to create for business owners, more accessibility for often underserved employee classes and a proposed solution to assist with the complex process of trying to move retirement balances from one plan to another as employees change jobs.

In no particular order, a few topics that we are thinking about internally are:

• The DOL’s helpful guidance was a great start, but with our lives, both personally and financially, becoming more and more ingrained in digital stock, being aware of the risks is ever more important. What we are not is experts in this field, but we thankfully have fantastic partnerships who can help us educate plan sponsors on questions they should be asking providers and plan participants on steps they can take to protect themselves.
• Savings Rates and Compliance Testing. As the word “recession” is being thrown around more often and the ravaging effects of inflation take hold of American’s finances, we worry about what impact this will have on plans and participants’ ability to stay on track for retirement. Unfortunately, we tend to see when times are fiscally hard, that generally creates the best buying opportunity in the markets. However, this is when money and finances are at their tightest and extra income to save goes to the wayside as families focus on more important expenses. This can then have adverse consequences for those who continue to save, as plans may fail compliance testing. The really important thing is to help educate all employees to the opportunity the market is presenting, but not to overlook the real challenges they are facing in day-to-day living. Having excellent education on smart personal finance guidance, debt management and opportunities for one-on-one coaching are critical to helping people get through difficult times.
• Target-Date Funds. This is not an attack on target-date funds, as many of our clients utilize them in their own plans. Our more pressing concern is on TDF suitability studies and education. We have seen this play out in the past, and again as most recently as 2022, when people use blanket descriptions for TDFs and assume they are all created equally. Working with plan sponsors to do a thorough dive on the TDFs available in the marketplace and providing a fit analysis for their plan’s demographics is critical to successful retirement saving. The term ‘set it and forget it’ is also a concern for us, as the helpful analogy may be creating the precedent for bad behavior around these funds and misleading participants into believing that once they select this option, they never need to revisit their allocation again.

The core theme on how we see best to address these issues, and more, is open communication and continuous education. If you get into the office and find you have a slow day, it should quickly be filled with continuing education and research on these topics and more for your clients!

PLANADVISER: Why do you feel it is important to work individually with plan participants?

Sherman: This question goes back to my prior roles in this industry, where, typically, many individuals’ first meeting with a financial professional is just before or at the time of retirement. It is no secret that money is a taboo topic, and many people are facing the belief that they are not ‘wealthy’ enough to have the right to work with a financial professional. Our firm is working to flip the script on this. We know that while most Americans’ two largest assets are their home and their retirement plan at work, those are not their two largest financial concerns. Our experience of working with plan participants may start with a simple question around how to get logged into their account or reminding them of the differences between Roth and pre-tax savings options, but it never ends there. When we ask questions to get them to open up about the ideas and fears around money, we find that they have so many more needs than can be covered in a generic 401(k) or 403(b) education presentation. People truly do want help, but the stigma that they not be rich enough to access it is something we are trying to change.

The education system is working to address this, but things are moving slowly. For better or worse, this burden seems to be falling onto employers to provide this education and benefit. We have all seen the statistics about the impact of financial stress or underprepared, aging employees on businesses and their productivity at work. We view ourselves as part of the solution until something changes on a systemic level. If we don’t work with employers to help provide this opportunity to financial coaching, who will?

PLANADVISER: What are the biggest challenges that plan participants face today and how are you helping to address them?

Sherman: I think one of the biggest challenges facing participants today is inertia caused by either fear or feeling overwhelmed. Some of the most impactful features we have at our disposal use these challenges to our advantage: namely, auto-enrollment, auto-escalation and the QDIA. We found a way to turn a major problem into a fantastic solution by flipping the script and allowing inertia to help settle participants into the right behavior. We have all been through this ourselves—you find yourself walking through the grocery store aisle and suddenly become inundated by the myriad of choices presenting themselves to you, and you panic: “Do I want Ketchup or Catsup?!”  

Let’s try another scenario: A 20-something first-time participant who is excited about their first 40-hour-a-week job. Day 1, they walk in and start with an orientation meeting with Sienna in payroll and are expected to fill out a W-2 for the first time. They are then rushed off to meet Taylor in HR and are told they need to select an irrevocable health insurance choice that will stick with them for the next 12 months. At lunch, they meet Sally, their manager, who is giving them logins and passcodes to the six platforms they are expected to know how to use by Friday. They are then lucky enough to finish the day with a reminder they are eligible for the company retirement plan and its ‘safe harbor match’ (whatever that is!) and are given a one-page flyer on how to log in to their retirement account, only to find that after they have picked a beneficiary, they are expected to build a sound financial portfolio and they have to understand what an ‘emerging markets fund’ is! Oh, and through no fault of their own, HR is not legally allowed to give them advice on how to select the correct option.

By removing barriers and putting plan design elements in place to help participants default into a successful retirement, we can help so many people. By taking a cue from behavioral finance and allowing us to use what used to be negative attributes and turning those into a powerful force for establishing good habits, we can help a lot of people. In my ideal world, we would be able to sit down with every employee on the day they are hired and at least annually thereafter keep them on track and tackle the challenges we know at some point we all will face. But that is hard to do, even with advances in technology. However, with technology and thoughtful plan design, we can at least begin to set up the foundation so that no one retiring 40 years from now will say, “I never signed up for a plan because I couldn’t decide how much to save or where to put my money.”