Retirement Solutions Now Header

AdvisorNews - June 2014

Participants seek help with 401(k) plans, survey finds

By Mary Ann Tasoulas
September 4, 2013

The majority of American workers accept responsibility for financing their own retirement and are relying primarily on their 401(k) to get them there, but many lack the confidence to effectively manage their retirement savings.

This according to a nationwide survey of more than 1,000 401(k) plan participants, commissioned by Schwab Retirement Plan Services. Respondent findings show a high level of self-reliance. Approximately nine in 10 (89%) say they will be responsible for coming up with the money to support themselves in retirement. Five percent indicated that their financial help will be provided by the government upon completion of their full time employment.

This self-reliance is fueled by the anticipated use of 401(k) plans.

  • 61% report the 401(k) is their only or largest source of retirement savings
  • 55% have increased their savings rate in the last two years
  • 70% say their 401(k) is in better shape now than ever before

“It’s gratifying to see so many people taking the reins of their retirement,” says Steve Anderson, head of Schwab Retirement Plan Services in a statement. “In our view, contributing to a 401(k) plan should be the number one savings priority for workers. Planning ahead, taking action and getting the help you need along the way are key steps to help build sufficient retirement savings.”

The survey reveals that saving in a 401(k) is not enough to instill confidence for many participants:

  • 52% find their 401(k) investment explanations even more confusing than that of their health care benefits (48%)
  • 57% would like an easier way to figure out what 401(k) investments are right for them.
  • 46% don’t feel they know what their best investment options are.
  • 34% feel a lot of stress over correctly allocating their 401(k) dollars.

Many 401(k) plans offer some type of professional advice, which can be instrumental in helping people take better control of their investments. Of those surveyed, 61% want personalized investment advice for their 401(k). Participants requested the need for guidance on everything from asset allocation to risk tolerance and retirement income planning.

First and foremost, the survey showed that investment confidence nearly doubled when workers have the help of a financial professional. Approximately one-third (32%) of survey respondents expressed confidence in making the right 401(k) investment choices based on their own ability, compared to 61% if they also had the help of a financial expert.

“Getting more workers engaged in professional 401(k) advice should be a top priority for employers. We’ve seen the positive impact it can have on both behaviors and outcomes,” Anderson says. “At Schwab Retirement Plan Services, Inc., participants who used third-party, professional 401(k) advice tended to increase their savings rate, were better diversified and stayed the course in their investing decisions.”

7 Basic Investment Concepts Every 401k Participant Must Understand

By Christopher Carosa, CTFA | June 25, 2013

The evidence overwhelmingly indicates most employees have a problem saving. That’s why focusing their attention on savings is critical to their achieving retirement success. There are those few, however, who are well on their way to saving enough and who have the time, resources and interest to devote to learning the art of investing. These folks generally belong in the “Do-it-Yourself” category of a tiered fund option menu.

With that in mind, we polled several prominent investment advisers and asked them the identify the most important investing concepts 401k participants should understand. Here’s the top seven:

1. The Risk-Return Relationship:
The “Soundbite of the Century,” courtesy of Harry Markowitz and what eventually became known as “Modern Portfolio Theory” states “risk and return are related.” As you take on more risk, you increase your odds of scoring big gains. Of course, there’s a flipside to this many would prefer to ignore. “Investors often assume that taking more risk means you will make more money. This is not always true,” says Amy Rose Herrick, an Investment Advisor Representative with offices in US Virgin Islands and Tecumseh, Kansas. Herrick continues, “What this does mean is that your account values may swing up and down more than a lower risk more stable value option. Those swings will work for or against you depending on when you plan to retire or when you will start spending the money accumulated in those assets. Investors in early 2001-2002 and again in 2007-2008 were horrified that investments that had been performing so well dropped as much as 30-50% quickly. Many of them erroneously thought that being labeled “moderate conservative model” meant that kind of loss couldn’t happen to me- it did. If they were planning to retire, they were out of time to ride out a recovery that would take several years to again be at pre-drop levels, if ever depending on what they were invested in. The choice was to either retire with 50% of the income you planned on by selling investments for less than you paid for them in many cases that would never recover or work longer to increase the balances again. Many individuals we all know were forced to work longer to rebuild savings, it really was not a choice. Understanding the risk and potential performance swing level of your investments is crucial to your financial well-being.
In the end, though, there is no “one right answer.” How each individual manages the risk-return relationship will be up to that individual. “Know yourself and manage risk appropriately. It’s important to get your mix right, especially early, because mistakes can have long-lasting effects,” says Gary Pattengale, a Wealth Manager for Balasa Dinverno Foltz LLC in Itasca, Illinois.

2. Diversification: In one of the greatest ironies of modern investing, advisers often misquote Mark Twain as saying “don’t keep all your eggs in one basket.” In fact, he said just the opposite. He said “Keep all your eggs in one basket and watch that basket!” In other words, we can’t ignore the costs of diversification. Ol’ Samuel Clemens was advising us not to overextend our resources and just to simply stick to what we know. Still, the concept of diversification is important. “The market is fickle, and the most successful way to deal with that is to spread your risk. If one category is not performing well, only a portion of your portfolio is impacted, rather than the entire account,” says Ozeme Bonnette, Financial Coach at Tri-Quest Investment Advisors in Torrance and Fresno California.

Still, don’t lose sight of Twain’s adage. Lauren G. Lindsay, Director of Financial Planning at Personal Financial Advisors in Covington Louisiana, says, “Diversify appropriate to YOU. Just because the guy next to you is doing it, doesn’t mean it is right for you. Most plans now include some kind of risk test, good idea to take it. And age is not an indicator of risk. We have ultra-conservative 20 year olds and super-aggressive 70 year olds so things tied to age are not always appropriate.”

3. Asset Allocation:
“Asset allocation means how much money you will have allocated to each type of investment,” says Thomas Batterman, Principal at Financial Fiduciaries/Vigil Trust & Financial Advocacy in Wausau, Wisconsin. “So for example, if we look just at the broad categories of stocks and bonds and define stocks as risky and bonds as safe, what percentage should you have in stocks and what percentage should you have in bonds. It can and should go further than that the more money you have to invest as you might get into suballocations within your stock investments of allocations to “safer” stock investments versus more “risky” stock asset classes. But at the end of the day it is about how much you will invest in each asset class. There are again numerous online resources to assist with education on this point. In the way we work, clients hire us to do this kind of stuff for them because they don’t understand much about it and don’t want to take the time to learn.”

Christopher Long, President of Long Financial Planning in Chicago, Illinois, says, “Investors can develop an asset allocation that best fits their time horizon (younger=more risk, older=less risk), tolerance for short -term decline (take 50% of the stock allocation to determine the potential short-term loss e.g. 50% stock means a 25% potential short-term loss), and long-term growth rate. (Stocks have averaged 9-10% over the long-term, bonds 5-6%).”

4. Time is on Your Side:
Elle Kaplan, CEO & Founding Partner of Lexion Capital Management LLC in New York City, says, “The beauty of investing lies in the ability of your wealth to grow over a long period of time. The short-term market “noise” is not what matters. With a sound investing strategy and a well-diversified portfolio, there is no need to follow the day-to-day ups and downs.” Long adds, “Often 401k plan investors save too little or do not invest in their 401k plan because they think they can ‘catch up’ later when they will be able to save more. This is especially true of young investors. They do not realize that for each 8-9 years they wait to start investing the amount they need to invest doubles. (e.g. if they needed to save 5% of their income at age 22, they will need to save 10% if they start at age 30, and 20% if they start at age 38).”

5. Don’t Time the Market: Here’s a classic problem that lures many naïve investors into its trap with the promise of riches. Unsuspecting 401k investors “chase performance and buy whatever was up the most last year. Then, when it goes down, they sell it and buy the next best performer, and so on. It’s a losing game,” says Pattengale, who further warns, “Don’t engage in dangerous market timing. Very few can do it successfully especially over long periods. The best chance to succeed is by picking an allocation you can stick with in any market environment.”

Bonnette says, “Timing the market means trying to keep up with what is ‘hot’ and moving funds from one opportunity to the next, hoping to maximize returns. It is important not to time the market because the majority of investors who chase ‘hot’ ideas usually perform worse than those who create a well-diversified portfolio. Most often, by the time the news reaches the masses, the biggest part of the market run-up has already occurred, and it is too late to get maximum value. If the ‘hot’ market suddenly runs cold, the chances are greater for losing a lot before moving the money out. Ignore the desire to shuffle your portfolio every time the media reports ‘breaking news.’ Stick to your diversified portfolio!”

6. Pay Attention to Fees that Matter: There’s a lot of talk about fees since the Department of Labor required service providers to fully disclose fees. Noah Greenbaum, Director of Portfolio Management at Canal Capital Management in Richmond, Virginia, says, “Many investment and insurance companies load up participant fund options with their own proprietary mutual funds because it helps pad their bottom line.. So I would encourage every participant to research what proportion of the funds available on the platform are owned by the 401k offering company. This is important because we need to ensure that investors are getting objective advice. The ultimate goal of the 401k is to build a retirement nest egg for plan participants, not executives on Wall Street. I would also encourage participants to ask their employer to use a 401k platform company that does not even have proprietary investments, thus avoiding conflict altogether.”

Batterman says, “Costs inside mutual funds can make a huge difference in the long-term performance of your investments. It is important to take a look at the cost structures of funds you might use. Cheaper is not always better – if it were, K-mart would still be a thriving enterprise. But cost is a factor.”

7. Monitor and Adjust as Needed: Unlike 401k investors who choose the “Do-it-For-Me” categories (i.e., those who want professionally managed portfolios and who will often choose just a single fund), those in the “Do-it-Yourself” category will need to spend more time monitoring their investments. Bonnette says, “Choosing a well-diversified portfolio is not a one-time thing. The investments should still be monitored regularly and adjusted when needed. If an investment is not performing well compared to comparable/similar opportunities, it may be time to shift. Rebalancing (adjusting asset allocations among the investment options) is also importantto make sure that the portfolio does not become less diversified due to market performance. An investment option that is good today may not be good forever. Managers change, company dynamics change, etc. It is important to stay invested, but that doesn’t have to mean staying in the exact same investments forever. When other, better options are available, it will make for a stronger portfolio outcome. Monitor your investment options when the statements arrive. Monitor the other options available. Be willing to switch to comparable/similar options if what you’re holding is no longer doing well.”

What all these basic concepts come done to is focusing on process over outcomes. Michael T. McKeown, Director of Research at Aurum Advisory Services in Mayfield Village, Ohio, says, “Investors cannot control the outcomes of the markets, but they can control the investment process. This is important because behaviorally, our feeble human brains often want to change course when our portfolios run into turbulence. If we can harness our emotions and stick to the process laid out from the beginning, investors can be buyers from others that may be liquidating at inopportune times or selling to uneconomic buyers.”

Six Ways to Show Value and Squeeze Out the Competition

Posted on October 30, 2013 by Sharon

In an increasingly regulated and competitive 401k industry, advisors are always looking for ways to bring more value to plan sponsor clients. By differentiating your services and demonstrating processes and procedures that your competition might not have covered, you stand out from the competition and make your book bullet-proof.

Below I’ve listed six areas where 401k advisors can change, modify, or enhance your current process to be more competitive and offer more value.

  1. Start by helping plan sponsors clearly define their goals and objectives for offering a company-sponsored retirement plan. In order to gauge the success of the plan, and for you as an advisor to offer real value, it’s important that plan sponsors articulate their main objectives. This will help you understand the financial commitment the company is willing to make, how to best structure the plan design, and how focused and engaged they’ll be in the management of the plan.
  2. Next, help plan sponsors identify those individuals who have fiduciary responsibilities and liability – and help them understand what exactly that means. There are a number of ways to offer value in this area, such as providing sample documents for setting up a formal investment committee, fiduciary acknowledgement letters, and basic fiduciary training. (Check out the new Fiduciary Essentials for Investment Stewards at
  3. Plan investment selection and monitoring is an area where most advisors have a pretty good process in place, but is still an area where shortfalls exist and where advisors can add tremendous value. If a plan does not have an investment policy statement or some written roadmap for the management of the plan investments – they should. Finding an outdated or unexecuted IPS is also not uncommon. A simple agenda item at the annual plan review to pull, review, and update the IPS is simple enough but is often overlooked.
  4. Ensuring fees and services are reasonable and necessary is a key fiduciary duty under ERISA. When we ask the question in our training programs, we typically find that more than one-third of advisors have never provided benchmark reports to their existing clients. Enough said.
  5. Because employees are the main beneficiary of a successful employee benefit plan, building an effective participant communication program is essential (and a great way to add tremendous value). LEVERAGE the resources of service providers, customize the program for the specific needs of the plan, and track the success and effectiveness of the communications program by running a baseline participant success report (Investment Horizons or Perspective Partners both offer great plan-level reports identifying over-concentration, diversification, retirement readiness percentages, etc.).
  6. Finally, on the plan administration side, providing a simple operational compliance checklist can head off a lot of common 401k administration shortfalls. The IRS website has a checklist and the American Funds has a great one as well in their Stay the Course brochure (and I’m sure there are many others).


Why employee benefit brokers are teaming with 401(k) advisers

With a new health care reform employer mandate on the way, expanding expertise becomes imperative
By Darla Mercado
May 1, 2014 @ 12:25 pm (Updated 3:44 pm) EST

As the health care reform's employer mandate looms in 2015, retirement plan and employee benefits specialists face new pressure to provide more well-rounded services or risk getting left behind.

Beginning in January, employers with at least 50 full-time workers will have to offer these workers and their dependents the opportunity to sign up in an eligible employer sponsored plan. If a company fails to offer the coverage or if the coverage is deemed unaffordable or doesn't provide minimum value, then the employer will be subject to a penalty. Per the Affordable Care Act, employers with fewer than 50 full-time workers can use the Small Business Health Options marketplace.

Experts say that the mandate, and particularly the availability of coverage for small firms via the so-called SHOP Marketplace, will likely squash profit margins for employee benefits brokers – the experts to whom employers turn for group life, disability, dental and health benefits.

That means employee benefits brokers will turn to other potential revenue streams, say their 401(k)s.

“If there's going to be margin compression in one area of benefits, then [brokers] will look for something similar, so this is a natural migration,” said Marcia S. Wagner, managing director at The Wagner Law Group.

Currently, Ms. Wagner said she's getting calls “routinely” from people in the welfare benefits arena, asking about understanding the 401(k) business. Retirement plans have become a legal minefield, particularly for those who are inexperienced. The Labor Department has had initiatives on fee disclosure, and it's preparing a law that will define who's a fiduciary in the context of ERISA law. “It might seem similar in that it's another employee benefit, but it's a creature unto itself with very complex rules,” Ms. Wagner said.

Still, others believe that while there may not necessarily be a flood of blind squirrel benefits brokers fighting for 401(k) business, there will likely be more alliances between 401(k) specialists and welfare benefits brokers.

As retirement plans place an increasing focus on fiduciary duty, benefits brokers may step back from that arena and look to align themselves with an entity that can handle the additional work and liability tied to 401(k).

“You have two teams agreeing to work on what they do best and to leave each other's clients intact,” said Jason C. Roberts, chief executive of Pension Resource Institute. He said that his firm assisted on about 10 collaborative partnerships last year.

“The ones we worked with were either sophisticated, proactive advisers or benefit shops that were big enough to know that this was something to get ahead of,” Mr. Roberts added. There's a bona fide need to have experts cover large plans with an array of benefits, and in reality a 401(k) expert adviser probably doesn't have an insurance license and may not be able to speak to other welfare benefits, including non-qualified deferred compensation plans, Mr. Roberts said.

When formulating those pairings – say, a team of 401(k) advisers working with a team of benefits experts – the groups need to figure out how the benefits brokers will be paid for their work.

Perhaps the adviser, particularly if he collects fee compensation, could source a piece of it to the broker – provided that the broker is offering a real service to the plan and isn't merely someone who's made an introduction between the employer and the 401(k) adviser, noted Mr. Roberts. The two experts will likely show up together at meetings with employers and employees.

In other arrangements, money may not change hands between the broker and the adviser. Rather, it's a mutually beneficial relationship where two teams agree to cover their respective area of expertise and protect their specialty, Mr. Roberts said.

On a larger scale, one example of two companies joining forces to cover all aspects of employee and retirement benefits is the 2005 partnership of major insurance broker The Willis Group and retirement plan RIA SageView Advisory Group. In this strategic alliance, Willis refers any retirement business fiduciary work to SageView.

“They saw the needs of the marketplace changing from a broker to a fiduciary, and they chose to outsource to us – a partner that can meet those needs and that specialization,” said Randall Long, founder and managing principal of SageView.

“There will be collaboration: Firms with different expertise,” he added. “I think an employee benefits firm that doesn't have the retirement piece will want to align with a firm that has the expertise and critical mass, rather than doing it themselves.”

As health benefits become a bigger deal to businesses, expect to see retirement plan service providers to step up even more. The fact that high-deductible health care plans and health savings accounts are becoming popular means providers can step up as record keepers for both the 401(k) and the HSA.

“More companies want an HSA and they need a record keeper for it,” Mr. Long said. “That dovetails into whether the 401(k) provider can do record keeping for the HSA.”

Demand rising for 401(k) advisors

By Paula Aven Gladych
November 6, 2013
The 401(k) market is booming for qualified plan advisors, but advisors who specialize in group retirement plans are few and far between.

Working with 401(k) plans is time-consuming and “it is hard to find someone willing to learn the business. You have to get someone early on in their career,” said Jania Stout, practice leader and vice president of the Fiduciary Consulting Group at PSA Financial Services Inc., based in Hunt Valley, Md.

Because of that, Stout says she is always looking for skilled advisors to hire. If five skilled 401(k) advisors applied for a job with PSA today, she said she would hire them on the spot.

“It is a big market. There is a huge shift going on. It used to be that brokers or advisors would have a couple of plans in their whole entire career. Now most of the plans are moving to 401(k) specialists,” she said. “Because of that, our team is growing. A lot of plan sponsors are looking for someone really qualified at this; someone who knows compliance and provider landscapes.”

The fact that plan sponsors are actively searching out skilled 401(k) advisors is a recent trend, she said.

In the past, plan sponsors could practically ignore their plans. The 401(k) was a relatively small employee benefit that was overshadowed by time spent working with health care benefits. Now, because of litigation and regulatory scrutiny of plan fiduciaries, chief financial officers are realizing they can’t just turn to their golf buddy as a plan advisor.

There is a big gap between the advisors who are real experts in qualified plans and newer advisors who are on the learning curve while trying to amass clients, said Jason Grantz, an institutional consultant with Lexington, Ky.-based Unified Trust Retirement Plan Consulting Group.

To address that, some advisors are beginning to partner with those who have the expertise. “They are splitting accounts instead of competing against each other,” Grantz said.

That trend will continue as greater regulatory attention is paid to qualified retirement plans.

The industry has evolved much in the past 15 years. The 401(k) plan, designed as a supplemental retirement vehicle to Social Security and pension plans, is now expected to shoulder most of the retirement load. This evolution has led to more regulation to make sure participants are treated fairly, are offered the best benefit and that conflicts of interest are vetted and corrected as soon as possible, Grantz said.

A lot of new regulations have been adopted in the past few years and more are coming including changes to the Securities and Exchange Commission’s and Department of Labor’s fiduciary standards.

That will have the dual effect of keeping many out of the business and boosting demand for those with the right skills.

Linda Leitz, chair of the National Association of Personal Financial Advisors, or NAPFA, said her organization hasn’t seen a lot of certified financial planners jumping in to work in the 401(k) space, and a big reason for that is the regulatory environment.

“ERISA said that anyone advising on a plan is a fiduciary and needs to take a fiduciary stand in dealing with people,” she said. “I don’t see CFPs leaving because of that. Many are saying they are not going to have that relationship with 100 different participants in a plan.”
Stout, for one, nowadays looks at junior brokers at wire houses who want to transition to a fee-based or fiduciary advisory model. It also has looked at professions that have the necessary skills to be an effective plan advisor, people like teachers and military veterans.

“So much of our job is educating plan sponsors on regulations or how fees and revenue-sharing works. Being a good communicator is really important,” Stout said. “We look at industries people haven’t thought of before.”