In Practice May 20, 2016

Retirement Advice Cuts Across the Political Spectrum

High-performing advisers at the J.P. Morgan DC Summit in New York widely hope the government will make retirement savings mandatory for at least some segments of the working population. 
Reported by

Retirement plan advisers, like professionals in any other field, cover the political spectrum and often disagree on basic points of public policy—from the impact of the Affordable Care Act to the proper role of Washington in regulating Wall Street risk-taking.

Still, there are other areas where advisers show a real ability to embrace bipartisanship—a fact made clear by flash polling conducted at this year’s J.P. Morgan Asset Management DC Adviser Summit. The annual meeting brings together about 150 of the most experienced defined contribution (DC) plan advisers serving employers all across the United States, and this year PLANADVISER got to sit in.

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

One area of policy agreement among many advisers as made clear by the question: “Should the United States government require mandatory auto-enrollment and/or auto-escalation into defined contribution retirement plans in the workplace?” A clear majority (59%) said yes, although a sizable minority (38%) said no, and 4% were unsure. 

Responding to this result, John Galateria, head of the North America institutional business for J.P. Morgan Asset Management, asked advisers about what type of plans they feel individuals should be automatically enrolled in—and again clear divisions emerged. Some advisers warned that plans run by the government will likely not be aggressive enough to actually help people reach retirement security, for example by only requiring a 2% or 3% salary deferral not tied to auto-escalation—while others argued many individuals would in fact be helped by mandatory-but-modest government-run plans because they can’t afford to spare much in the first place and a little savings is better than none.

Another group of advisers clearly feels the government should back off entirely from legislating the way people save and invest for retirement and focus instead on promoting stability in the wider economy, with the idea being that a rising tide lifts all boats. No surprise, all advisers generally agreed that privately run, employer-sponsored DC plans backed by expert advisory resources are the best option for actually promoting retirement readiness for individual workers. However, advisers cited the ongoing unwillingness/inability of many employers to shoulder the costs and liability involved with first starting and then maintaining a DC plan.

NEXT: Other areas of adviser agreement 

Another striking piece of flash poling data to come out of the J.P. Morgan DC Summit came out of the question: “Do you believe plan participants can make good investment decisions on their own?”

A whopping 57% of advisers said they are “not confident at all,” and 38% said they are “not very confident.” The remainder were a little confident—with not a single adviser in attendance suggesting they are “confident” or “very confident” about this.

“When we asked this same question of plan sponsors earlier in the year, we had 48%  of them expressing at least a little confidence in the investing abilities of their plan participants,” Galateria observed. “We believe that is actually much too high. There are some DC plan populations out there that are more knowledgeable than others, but given what advisers are saying here today, we need to make sure plan sponsors understand the limits of what their participants can handle.”

Advisers across the board clearly felt auto-features are the proper response to these considerations, with most of those in attendance saying they embrace autos and have enacted at least one re-enrollment in recent years. Reflecting the forward-thinking character of the advisers at the summit, 65% said they have recently conducted a re-enrollment, despite the fact that industry-wide only 7% of plan sponsors have conducted a re-enrollment.

“It goes to show you that DC plan advisers are truly leading the retirement conversation in America today,” Galateria concluded. “We know that we cannot leave a solution to the retirement crisis either up to the government or up to individuals to solve. Our industry is going to have a major role to play.” 

In Practice May 19, 2016

Taking the Pulse of Top-Performing DC Advisers

The strongest-performing advisers are leading the way on aggressive plan design, embracing re-enrollment, stretching the match and making sure plans work for participants as they’re designed to. 
Reported by

Each year J.P. Morgan brings together more than 100 of its strongest-performing defined contribution (DC) plan advisers for a DC summit—to hear about what is working on the ground and where improvements can be made from a product and process standpoint.

This year the firm invited PLANADVISER to sit in on the conversation, and to say that there are more than a few items of concern out there right now for plan advisers is a serious understatement. John Galateria, head of the North America institutional business for J.P. Morgan Asset Management, opened the summit by running through a list of 10 themes that will be very familiar to those working every day in the advisory industry—observing that each has a chance of derailing hard-won progress made by advisers and their clients in recent years, but also of shaping and propelling new advances. 

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“On the list of top priorities right now are fees, litigation, core menu simplification, the benefits of white labeling, target-date fund (TDF) glide path evaluation, unbundling of large plans for more transparency, alternatives in defined contribution plans, retirement income security, the growth/transfer of wealth to the Millennial generation, and the power of auto-features and re-enrollments,” Galateria said. “These are the issues our advisers tell us they are tackling on the ground and discussing with plan sponsors and other providers every day—and they are also a very big focus here in the home office.”

Adding an 11th item to the list of potential disruptors, Galateria later cited the ongoing efforts by more than half of state governments to introduce mandatory workplace savings schemes. “With so much disruption to overcome, it’s increasingly becoming clear that bold thinking and courageous action on the part of advisers are needed to protect the progress we have made and to push the industry to the next level of performance,” Galateria noted. “It’s up to the folks in this room right now to solve the retirement challenges our nation faces. We know that the we can’t leave it up to individual investors to do it themselves, nor can we wait for the government to step in with solutions that are going to be effective.”

Echoing the sentiment of many in the room, Galateria noted that all of these factors present a real risk of slowing or halting the progress the industry has made in the 10 years since the ratification of the Pension Protection Act (PPA). “We have heard clearly from all the advisers here today that their plan sponsor clients are really laser-focused on their litigation risk under ERISA,” he said. “Many are holding off on moves they feel would be the right thing to do, simply because they’re confronted with so much perceived litigation risk.”

 NEXT: Optimism abounds as well 

Joining Galateria in opening the summit was Anne Lester, head of retirement solutions for J.P. Morgan's global investment management solutions group. She echoed Galateria’s list of challenges, citing the 10-year anniversary of the PPA and the ongoing rollout of the Department of Labor’s (DOL) new fiduciary regulation as two major milestones for the industry.

She also warned that the wider demographic trends in the United States are quickly and powerfully reshaping the work advisers are called on to do. “There are a few statistics that sum up the demographic trends quite well,” Lester said. “For example, we can see clearly now that by 2030, the U.S. will have more people who are over the age 75 than who are at any other age. In other words, there will be more people over the age of 75 than there are young people in the workforce. It’s going to have a big impact on the U.S. and global economies.”

Lester encouraged advisers in the audience to look to places like Japan for an example of what this will look like: “That country is going through some well-publicized challenges related to having a very top-heavy population. Growth is weaker and the quality of life of older and younger people is being strained due to a lack of income.”

To avoid the same fate in the U.S. may be impossible given how difficult it is for either government or business to shape demographic trends. “But what we in the advisory industry can do is start making sure wealth is being built up among the younger segments of the population,” Galateria observed. “We can’t allow the problem to get worse and worse by allowing Millennials to fall behind on their own savings needs.”

Advisers in the audience agreed—with a few pointing out that their plan sponsor clients are starting to tune into these demographic issues, given that their own workforces are skewing older and older. One even suggested a few clients have started bringing Millennials formally onto the retirement benefits committee, in a clear attempt to be more forward-thinking.

“This is the type of bold action that is going to be invaluable in keeping the industry on track and making sure DC plans work for people in the decades to come,” Galateria concluded. “I’m actually very optimistic that the DC system we are still building out day by day will serve Millennials well, especially if we can impart all of this messaging to them now, while they have the power of time on their side.” 

«