SECURE Act’s House Passage Brings Test of Congressional Mediators

With the passage of the SECURE Act by the House of Representatives, experts tell PLANADVISER they are optimistic that agreement will be reached with the Senate during this Congress, but the many supporters of retirement reform will have to wait and see how compromise might be reached.

In a long-awaited vote held Thursday morning, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act, commonly referred to as the “SECURE Act.”

The bipartisan bill passed by a practically unanimous margin of 417 yeas to 3 nays (with 12 non-votes), and was hailed by House members, retirement industry lobbyists and advocates, and grassroots organizations as a significant victory for the average American worker.   

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The debate preceding the vote was mainly amicable and saw House members on both sides of the aisle celebrating the bipartisan process that brought the legislation to the floor. One point of contention, though, was found in the fact that the SECURE Act as passed does not permit workers to use 529 college savings accounts to pay tuition for K-12 schools.

While the retirement industry immediately reacted positively to the House vote, it is important at this stage to point out that the path ahead for sweeping federal retirement reforms remains uncertain. This is because the Senate has focused more on legislation called the Retirement Enhancement and Savings Act (RESA). Industry advocates say the opportunity for rectifying House and Senate bills is supported by the fact that both the SECURE Act and RESA (and various other bills pending in Congress) enjoy broad support from the retirement plan and asset management industries—and from more grassroots advocates, including independent small-business owners, members of the gig economy and part-time workers.

Reflecting on the mid-morning House vote, Kevin Walsh, principal with Groom Law Group, said today is an important day for the industry, but it’s not the end of the story. As Walsh pointed out, it is important now to ask about the path forward. Passage of the SECURE Act is an important step toward sweeping federal retirement reform, but the House is only half of the Congress.

“It feels a bit like Groundhog’s Day for many of us,” Walsh added. “Last year we were very optimistic for a House and Senate agreement, and it just didn’t shake out. But so far it still certainly looks like both Democrats and Republicans want to pass retirement reform legislation, and lawmakers have been able to pass similar bills in both chambers.”

Walsh says he still feels and hears a lot of optimism that the SECURE Act and the Senate’s Retirement Enhancement and Savings Act can be rectified.

“The job now comes down to the leaders of the key committees in the House and Senate,” Walsh said. “Can they compromise? This brings on a test of Congressional mediators. A lot of good ideas are moving through both chambers, and now it’s time to see if they can be put together. Typically, we think of a Republican-Democrat divide. Here, it is more of a House and Senate divide. Both chambers have popular bills and it will take work to bring them together.”

Debate turned sour on one issue

Broadly speaking the House debate on the SECURE Act was friendly and non-political. For his part, Representative Mike Kelly, R-Pennsylvania, called the passage of RESA “providential.”

Several issues did raise the ire of some members, however. Most notably, there were several Republican House members that voiced disappointment in the fact that the SECURE Act had been amended after committee passage to prevent the use of 529 college savings accounts for the payment of K-12 school tuition. Originally, the SECURE Act would have permitted parents to use 529 college savings accounts to pay for K-12 tuition at public, private, religious or home schools.

There was also some politically charged debate about the fact that the SECURE Act fixes an error programmed into the recent tax cuts, which unintentionally increased the tax burdens of Americans collecting benefits connected to family members killed in the line of military duty, as well as the tax burdens of inheritors of wealth in certain Native American groups. 

What’s in the SECURE Act?

At a high level, the lawmakers said, the SECURE Act contains many popular measures to help Americans.

Besides making it easier for employers to offer lifetime income products in defined contribution plans, the SECURE Act includes provisions to remove restrictions on small employers’ ability to band together in a multiple employer plan (open MEP).

Related technical changes to the tax code will ensure the portability of lifetime income products, and another provision will help savers make more-informed decisions regarding their finances by providing lifetime monthly income estimates on benefit statements.

The SECURE Act would increase opportunities for workers to save by enhancing automatic enrollment and escalation features, for example by removing the auto-enrollment safe harbor cap and increasing the cap for automatic escalation of employee deferrals. Among other provisions, the SECURE Act includes measures to require employers to allow long-term, part-time workers to participate in their workplace 401(k) plan, and a measure which would increase the current required minimum distribution (RMD) age limit to 72.

Product Development Moves Beyond the 401(k) Plan

Retirement plan advisers with established 401(k) businesses are finding new revenue streams and client engagement opportunities among nonprofits and educational institutions, and in the area of estate planning.

PLANADVISER Magazine regularly receives announcements from providers active in the retirement plan space, detailing new services and solutions tailored to help 401(k) plan advisers run their businesses more efficiently and effectively.

In the last year or more, there has been a clear acceleration in the creation of services aimed at helping advisers with established 401(k) plan businesses reach out into other areas—solutions that promise to help with cross-selling to existing clients as well as solutions that aim to open up whole new markets for advisory shops. In fact, cross-selling potential and the goal of entering new markets has also driven a substantial amount of advisory industry merger and acquisition activity in 2018 and 2019.

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Chris Shuba, CEO at Helios Quantitative Research, a firm focused on delivering practice management solutions to financial advisers, agrees that the advisory industry is evolving in a way that makes it important for practices to expand beyond the traditional way of doing business. In short, the commoditization of pure investment advice, based in the incredible advance of investment management platforms, means that advisers have to provide more holistic services to their clients to remain relevant.

Shuba points out that Helios has just launched a new online software system geared toward helping advisers develop “attorney-quality estate plans” for their clients “in just days.” According to Shuba, Helios Integrated Planning can help advisers address “the overwhelming need for assistance with estate planning in the advisor space,” and it also allows advisers to add value for their clients and solidify lasting relationships.

“With our new service, advisers gain access to online estate planning, estate plan reviews and legal support with 48-hour document delivery,” Shuba says. “The offering includes comprehensive training for advisers and support throughout the process. The finished product will be reviewed by experienced estate planners or attorneys, giving advisors peace of mind.”

Shuba expects the estate planning service will gives advisers additional opportunities to build multi-generational relationships with their clients and their clients’ children, while driving stronger planning revenue. He says advisers will embrace the fact that they won’t have to outsource estate planning matters to attorneys, “which can take weeks, if not months.”

According to Shuba, in the majority of cases, almost all of the assets an adviser works on will leave a practice after the passing of a second spouse. He says this type of estate planning solution gives advisers the opportunity to be at the center of legacy conversations, “in order to forge necessary bonds with the next generation.”

Shuba says moving into areas like estate planning can help advisers better justify and even increase their annual advisory fees.

“We see this service as a new mechanism for advisers to have a meaningful conversation about value and fees,” he says. “You can go to a client and explain that, instead of them going out and paying an attorney thousands of dollars to do the estate plan, this can be brought into the financial planning relationship instead. The adviser can move their fee from say, $1,000 per year to $1,500 per year, and the client will be saving money on net.”

Looking broadly at the topic of advisory practice evolution, Shuba says, there is good reason to believe that the competitive pressures experienced in the industry today will only grow more intense over time.

“The future of this business is about asking how the financial adviser can shed as much of the minutia of running a business as possible, so that they can focus more on what they are best at, which is working with clients and helping them set and achieve goals,” he says. “The future of financial advice is not a robo platform, nor is it the classic version of the financial adviser. Instead, it is a blend of a highly personable, relationship-driven front end that bring to bear a highly technical and efficient technology-based practice on the back end. This is the new business model for financial advice.”

Right now, Shuba says, a lot of advisers are still thinking about running “practices” instead of “businesses.”

“In the future, I think many more advisers are going to have to embrace the CEO mentality,” he concludes. “The other pressing consideration for practices is how they will navigate the growing amount of consolidation and the emergence of very powerful aggregate competitors. It’s not an elective thing for advisers decide whether to embrace the new, far more efficient way of doing business. It’s an economic necessity to survive in a consolidating industry.”

Moving into new plan markets

Around the same time as the Helios product announcement, Fi360, a provider of fiduciary education, training and technology solutions, unveiled a new adviser-education program called “The Essentials of Public Education, Nonprofit and Government Retirement Plans Course for 403(b) and 457(b) Plans.”

As discussed by Michael Muirhead, Jr., senior vice president, learning and development, the training course will be offered nationwide through an online self-paced module. It is designed to help advisers and other key constituents in the 403(b)/457(b) space “create better outcomes for participants using fiduciary principles.” Among other features, the course highlights some of the major differences from 401(k) plans and offers guidance related to the unique plan features.

Other learning objectives include identifying associated laws, oversight entities and potential market-segment opportunities; improving understanding of plan administrative and operational details; examining key stakeholder roles and responsibilities in managing 403(b) and 457(b) plans; enhancing understanding of governance and fiduciary oversight practices; and increase understanding of plan fees and expenses.

“Accredited Investment Fiduciary designees and advisers working in the corporate 401(k) space are seeking to grow their businesses and they view 403(b) and 457(b) plans as an area where they may be able to leverage their unique fiduciary skills to accelerate their growth,” Muirhead says. “In terms of growth opportunity, this marketplace is a lot larger than many people give it credit for. There is something like $1 trillion in assets in terms of dollars in the 403(b) plan space alone, across some 125,000 plans and 15 million participants.”

Stepping back, Muirhead says, Fi360 sees this new service as part of its broader fiduciary certificate programing, which also continues to develop.

“We are monitoring closely what happens with the SEC’s Regulation Best Interest and the potential for more guidance from DOL,” Muirhead explains. “In my role working on learning and development solutions, I also do a lot of practice management training these days. Across the industry, a lot of attention being paid to developing more strategic and scalable customer relationship management practices. This is a core part of the discussion about future growth and future business success.”

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