May 8, 2024

2024 RPAY – Philip Sherman, Deschutes Investment Consulting

Reported by

Business at a Glance as of 12/31/23

Location: Portland, Oregon
How many plan assets do you have under advisement? $1.7B
What is your median plan size (in assets)? $5.4M
How many plans do you have under administration? 79 plans
How many participants in total do you serve? 38,000
Parent firm: Not applicable

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

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Sherman: Our firm was started in 1997, and our founder, MacGregor Hall, has been involved with retirement plans his entire career. He likes to remind our team that he helped set up one of the first 401(k) plans in the state of Oregon. I personally joined the firm in 2019 and specifically was drawn to Deschutes due to their work with retirement plans and focus on education. When I first entered the financial services industry, I started as a wealth adviser working solely with families and individuals. Less than a decade into my career, I started losing my zest for the industry and was becoming burned out after a series of client meetings in which I saw individuals unprepared for retirement who were forced to leave the workforce due to age or health reasons. This was incredibly frustrating for me, as these families needed time more than anything else, but I couldn’t provide it. Instead, I knew I needed to find a way to pivot my frustration into action, and that is when I found Deschutes. As a firm, Deschutes is and always will be deeply dedicated to providing participant education and resources. This provided the opportunity I was seeking, allowing me to connect with participants whom I could assist not only in the present, but also for years to come, providing the financial education and support they deeply require.

PLANADVISER: Are you connected to a wealth management division? If so, please explain how you work for them and your goals for coordination. If not, please explain whether you plan to be in the future, or not, and why.

Sherman: Yes, Deschutes has a wealth management division. I started in this industry as a CFP professional, so I am deeply rooted on both [retirement and wealth] sides based on experience and the fact that I have legacy financial planning clients I still work with. From a firm perspective, the two sides are integrated and work together to support each other for overall success. We are fortunate to have a team of CFP professionals that we can use to assist our education efforts, whether in the form of creating content or attending participant meetings that we know are covering more advanced topics. In our experience, once most participants understand how to log in to their account and what the company match/contribution amount is, their questions tend to focus on specific topics related to their personal financial situation that often have nothing to do with the retirement plan. Having a wealth management division allows us to have a direct line into what financial issues are keeping our clients up at night. We are completely independent, and that allows us to run our firm in an ethical-conflict-free manner. We do not have account minimums on the wealth management side, so the idea that we only work with the ultra-wealthy is not indicative of our firm’s practice. We also have built in guardrails, like requiring participants to go through our free Retirement Assistance Program and required fee disclosures that clearly lay out costs before working with the wealth management team.

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

Sherman: In my opinion, the biggest challenges our industry faces are financial literacy and income replacement. For years, you could have argued it was plan design or entry to retirement plans, but recent legislation on national and state levels has alleviated this hurdle for many Americans. The old mantra, ‘Fees, Fiduciary and Funds’ has been relegated to advice of the past. Today, as advisers, much more of the work we do should be directed on how we help participants. Participants want help and are looking for guidance that relates to their situation. That’s why we created a series of educational webinars designed to meet participants where they are in their career/financial stage. This helped us tackle financial education and literacy, but what about income replacement? To address this, we focus on Social Security and the idea of working backward to fill the gap. We work directly with our HR contacts to get average company salaries and build custom education presentations that illustrate what participants need to have saved in retirement. We can then back out what Social Security will cover and provide examples of how they can ‘fill the gap’ through their retirement plan and personal savings. Taking it one step further, we then encourage those who are 50 or older to go through our ‘Retirement Assistance Program,’ which partners them with a CFP professional to go through our proprietary financial gap analysis and provide direct feedback on their family’s retirement readiness and other considerations.

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

Sherman: I feel it is important to work individually with plan participants because of how the financial services industry is structured and rewards advisers. The system is inherently built to drive and reward advisers who serve those with the most wealth accumulated, often leaving those who need help the most left to fend for themselves. For prior generations, they had the comfort and confidence to know that if they stayed with a company for long enough, they would walk away into retirement with a pension intended to support them and their families until they passed away. When pensions went away, individuals were left to fend for themselves, and now the only ‘pension’ left for Americans is Social Security, which is under much scrutiny and pressure in its own regard. If companies historically provided a safety net via pensions in the past and are now moving forward with defined contribution plans, one of the few ways we can work to provide that same sense of comfort is through education and the opportunity for consultations. I don’t blame companies for disbanding pensions. A manufacturing plant is generally pretty darn good at prefab or logistics, but asking them to also be experts in financial markets is an impossible task; just take a look at certain governmental pensions with some of the brightest financial minds working on their team that are under duress. When we put that same financial management pressure on individuals and their families, how can we expect them to succeed without help?

PLANADVISER: What are three of the biggest challenges that plan participants face today? How are you helping to address them?

Sherman: Income replacement, access to quality education and industry jargon and paperwork.

Remember when annuity was a bad word? Now, in-plan retirement income and creating your own ‘pension’ are presented at every industry conference. But we cannot ignore the very real fear participants have of Social Security’s solvency. ‘Will Social Security be there for me?’ was our No. 1 question asked last year (besides ‘Can you reset my password?‘). We work hard to remind participants to control what they can and focus on finding ways to set aside even the smallest amount to get started on building savings.

For quality education, it boils down to meeting participants where they are. That means media format and the topics that matter to them. We take participant feedback seriously, and our best education presentations aren’t some wildly creative ideas we had, but come directly from consistent participant questions on the topics that matter most to them. We are so ingrained in this industry to talk about retirement that we sometimes forget to listen to those we serve.

Lastly, it is our jargon and the frustrating process participants have of completing our industry’s paperwork. When’s the last time you sat on hold to help someone with a rollover? Banking has so many advances that participants are now accustomed to that it makes the retirement industry standards seem antiquated and unnecessarily difficult, even if they are in place for sensible security reasons. Cut through the jargon and create helpful ‘How to‘ flyers; trust me, it will go a long way!

May 8, 2024

2024 RPAY – Kim Cochrane, HUB International

Reported by

Maria Kofman

Business at a Glance as of 12/31/23

Location: Rockville, Maryland
How many plan assets do you have under advisement? $450M
What is your median plan size (in assets)? $1.7M
How many plans do you have under administration? 65
How many participants in total do you serve? 4,000
Parent firm: HUB International

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

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Cochrane: I started my career at a bank in the trust department, reconciling contribution files and performing plan testing by hand. After 25 years in that side of the business at a few different recordkeepers, I decided to pivot to investment advisory. I saw a large need for adviser teams to provide more consultative solutions to clients. Recordkeepers were having to struggle to provide these services for all plan sizes, but I realized that clients needed this service more than ever. I joined a practice that I had worked with for over 15 years as director of client services in February 2020, right before COVID shut down the world. The practice had some strong advisers but needed additional direction into practice management and assistance to build a scalable practice while refining their white glove service model. I could not have made a better decision.

Cochrane: My former firm joined HUB International in January 2022.Prior to that, we did not have a mature wealth management practice, but rather a few advisers who split their time between plan advisory and wealth management. Since joining HUB, we have a strong wealth management arm that provides us with a seamless solution. All of us on our team, including our financial wellness strategists, meet with employees one-on-one. When we find a participant who has a need for personal financial planning, we have a formal process for who the lead gets assigned to and a way for the adviser to track the progress. We also share in the revenue. Our goal is to make wealth management available to all employees of the plans we manage, regardless of how large or small their account balance.

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

Cochrane: Our industry is constantly faced with detractors, including Congress and media outlets that paint the 401(k) or 403(b) plan as inherently broken. The claims are that the retirement plans only benefit the wealthy and the only solution is a governmental program. The problem with that thinking is these comments ignore the fact that employees have access to a competitively priced program that is heavily regulated by the government, and if they save a small portion of their income every pay period, they may actually accumulate a sizable sum at retirement. Now, for that to work for our lowest-paid employees, this takes some education. Employees who may only make $15 per hour and save 5% of their pay will feel less than $0.75 per hour coming out of their paycheck. Sometimes the messaging is overwhelming to an employee, and they don’t take action because they don’t understand how it works. By utilizing plan provisions like automatic enrollment, we are finally seeing average account balances grow to the highest amount ever (per Fidelity Investments surveying). Providing education that breaks it down into pennies on the dollar may bridge that gap of understanding.

When it comes to closing the coverage gap, that is even more important. There are hundreds of thousands of employees without access to a retirement plan. SECURE 2.0 made it financially easier for employers to sponsor a retirement plan by providing tax credits, but these tax credits do not apply to nonprofit entities. That is a disservice. At HUB, we have solutions for all size plans, including startup plans. I regularly meet with my senators and congresspeople to discuss pressing issues and take every opportunity I can to point out that the tax credits have left some behind. I am hopeful that a program will be finalized that will provide a financial offset to the cost to administer a retirement plan in the next year.

PLANADVISER: Please tell us about an important issue that your 403(b) plan sponsor clients face and what actions you have taken to assist them in overcoming those issues.

Cochrane: One of the greatest issues I have seen my nonprofit clients face is a result of very high employer contributions. Many nonprofits in the DC area offer a very high 10% nonelective contribution. Many of the employees see this 10% being contributed and do not contribute their own money. Participation rates will hover around 30%. I think many feel like 10% is enough to allow them to retire comfortably. I explain to the employees that unless they will work for that company their entire careers, it is better to save additional money and build a habit. Another company may not have such a generous benefit. I have also worked with employers to redesign their nonelective to be partly a percentage of pay and partly a match. They can use the same 10% contribution, but build it so that an employee will receive 5% of pay plus a 100% match up to 5% deferral. This encourages participation from the employer, but also provides the same benefit to employees if they save their own money.

PLANADVISER: How did you get started advising 403(b) plan sponsors? What advice would you give other advisers wanting to enter this market?

Cochrane: I have been primarily working with nonprofits since the 2007 403(b) law changes. These new regulations were a driving force into modernizing the 403(b) plans, shrinking the vendors that employers were sending employee contributions to, and requiring a form 5500 filing. What I learned is that these employers were looking for “partners” not vendors. With all the changes, companies had no idea what was being expected of them. Consulting with employers on what it means to be a fiduciary was crucial as well as helping them navigate individual contracts versus group contracts and the responsibilities that are present even when the employer has no control over the investments or administration. The industry has grown, and many employers are now operating their 403(b) just like their 401(k) counterparts, so the market is easier to get involved in. My advice would be to understand that culture plays a bigger role with nonprofits, and their vision and values drive many of their decisions. Listen and understand how the company treats their employees. When it comes to complex contracts you may encounter, seek assistance with the vendor or others in the business. We are always happy to share our insights.