Sunday, February 27, 2011

Hire Powers

One of the first things you learn in any kind of ERISA primer is that, as a fiduciary, you are expected to conduct yourself either as if you are an expert, or hire someone to help you who is. This so-called “prudent expert” rule is, of course, a significantly higher standard than the one applied to mere common- law fiduciaries—in fact, it is generally described as the highest legal standard. Of course, plan sponsors have long relied on the help of experts—attorneys, third-party administrators, investment managers, and recordkeepers—if only because so much of what a plan sponsor must do in operating their retirement program requires their active involvement.

Not so retirement plan advisers, who, for many plan sponsors, remain something of an optional enhancement to their program. That said, in an environment that remains a legislative, regulatory, and operational thicket for even the most active and engaged plan sponsor, it is a plan option that is rapidly becoming standard equipment. Well-intentioned as such hires often are, they can be done for the wrong reasons. In the February issue of PLANSPONSOR, we asked previous winners of our Retirement Plan Adviser of the Year how plan sponsors can find the “right” adviser.

Today I’d like to turn that around. How can you, as an adviser, get connected with plan sponsors that will not only hire you, but will allow you to do your very best work for them, and for their plan participants?


Start with your friends and/or professional associations. Long a primary source of business for the advisers in our special “panel,” this is now the only channel for many of them. Now, for plan sponsors, this gives them the benefit of a personal reference from a colleague who knows and has perhaps already worked with you. But it also turns out to be a good way for you to “vet” the plan sponsor for a good philosophical fit.

Give them a chance to see you in action. It’s one thing to meet them at the Rotary Club, perhaps even better when you share some kind of board affiliation, but more and more advisers offer local seminars on topics of interest to plan sponsors. It gives you a chance to demonstrate your expertise—and you’ll get a chance to do so in front of potential clients who, by their attendance, have already expressed a more-than-passing interest in the topic.

Don’t be shy about references. This is admittedly a sensitive issue for advisers. After all, having spent a lot of time, energy, and money to develop those relationships, the last thing you want is to put those in the hands of folks who might try to steal them from you. But the top advisers I spoke with didn’t “hide” those references behind a “furnished upon request” curtain. For them, it was a statement of confidence not only in their ability to retain those relationships regardless of a potential “poaching,” but also a testament to the scope of their expertise and the tenure over which those relationships had been developed.

Be clear and concise about your fees. The regulatory winds are making this less of an issue than it once was, but it remains a way to distinguish yourself and your services from those who are less serious about working with retirement plans. I often tell plan sponsors that a good adviser will nearly always be able to save their plan money—though I also caution them that if saving money is their primary motivation, they are likely going to be disappointed.

Be able to demonstrate your commitment. Plan sponsors are increasingly wary of recordkeepers teetering on the brink of “exiting the business,” but when it comes to retirement plan advisers, the worry is that, for you, retirement plans are just a “hobby.” There are any number of ways to do it, but having the answers to the questions below will put your practice in the appropriate light.

Don’t take the relationship for granted. Like any relationship, things change and needs evolve—and that’s true for your relationship with a plan sponsor plan as well as the plan sponsor. Birds of a feather flock together, and ultimately you can really only do your best work if you are working with plan sponsors who are not only committed to their plan, but are open to, and supportive of, your recommendations to make it better.

But IMHO, if they are interested in hiring you as a retirement plan adviser—well, that’s a good sign.

—Nevin E. Adams, JD
You can read the article from PLANSPONSOR magazine here


How to prove your commitment to the retirement plan business.

What percent of your firm’s revenue is from retirement plan consulting?
How long have you been servicing retirement plan clients? Can this be documented?
What recognition have you achieved from independent sources that establishes your expertise and credibility?
How many retirement plan clients are handled by the team that will work on a prospective client’s plan? Does that team have individuals with different specialties?
How many different vendors do you work with for their existing clients?
Can you document ways in which you have helped clients through DoL audits, IRS audits, voluntary compliance issues, partial plan termination determinations, plan mergers or spin offs, plan terminations, and corrective contributions?
How—and how often—do you inform clients of regulatory changes and updates?


Source: Chad Larsen, Moreton Retirement Partners

Sunday, February 20, 2011

Expectations Set

Thousands of protestors took to the streets this past week—in Wisconsin.

They were protesting legislation that would restrict the scope of collective bargaining power, while at the same time requiring public-sector workers to pay more for their pensions and health care. Last week, reportedly 40% of Madison, Wisconsin, schoolteachers called in sick (ostensibly they were in attendance at the state capital, and by appearances bringing some of the student body with them). The protestors (at least the ones on camera) drew comparisons to their actions with those taken recently by those in Egypt protesting for freedom and a democratic system of government.

But to my eyes, it looked more like Greece.

Don’t get me wrong. The Wisconsin protests were boisterous but appeared to be peaceful, and I’ve heard no reports of the kind of violence and arson that accompanied the protests in Greece a year ago (see Grecian Formula).

But in Wisconsin, as in Greece, a big issue is pensions and benefits1; more specifically, that certain promises had been made to workers by a government that said it was no longer able to meet those obligations, certainly not on the original terms.


During the Greek protests, I was hard-pressed to find anyone sympathetic to their cause. Most had read with some incredulity coverage of the sanctioned state retirement age (61, though reports said many retired as early as 53), and considering the enormous financial straits of that nation, most seemed to think the protestors needed to be reintroduced to reality. Of course, I wasn’t talking to any Greek nationals about this—just associates in this country and others who are living with (and within) a completely different set of economic and retirement expectations.

Which brings us back to Wisconsin—or New Jersey, or California, or Ohio, or perhaps even your town. Doubtless some of those protesting workers are overpaid and underworked, as in any workplace, but surely most are undertaking to do an honest day’s work for a fair amount of pay and benefits. These people are, as President Obama said recently, our friends and neighbors. Heck, in my case, they are also family members. And I can promise you that the teachers and/or police officers in my family are NOT overpaid.

On the other hand, I have plenty of friends and family in the private sector who have lost their jobs through no fault of their own, and had to figure out a way to make ends meet without the protection of tenure, or the safety net of a pension or retiree medical coverage. They weren’t overpaid before they lost that job, and they surely weren’t afterwards. Many who still have jobs have had to absorb pay and/or benefit cuts (or had those cut into by higher prices and co-pays). They have had their pensions frozen, if they ever had one at all, and not a few saw their 401(k) match suspended over the past couple of years. Many haven’t seen a “regular” cost-of-living increase capable of keeping up with the increases in the cost of living in a very long time.

They are, quite simply, living with (and within) what appear to be a completely different set of economic and retirement expectations than those now in, and descending upon, the Wisconsin capital.

And, as a result, I can’t help but wonder if they’ll be sympathetic.

—Nevin E. Adams, JD

See also “IMHO: Promises Premises” at

1 Some might argue that the real issue in Wisconsin is proposed changes in collective bargaining rights rather than pensions, but at issue, among other things, is the right to collectively bargain for wages, pensions, and benefits, so….

Sunday, February 13, 2011

Service Charges

As Valentine’s Day looms, you have perhaps seen those increasingly ubiquitous advertisements for a certain online florist.

Now, I’ve used that particular service on many an occasion over the past several years; they are not only convenient, they deliver a quality product, and on time (yes, some “assembly” is required). In sum, I’ve used them before and will doubtless use them again.

That said, if you’ve been lured to their Web site by their ads touting a dozen roses for $19.99—well, let’s just say you could be in for a surprise. See, that advertised price doesn’t include a vase (well, not a pretty one, anyway), the delivery charge (which, depending on when you want it delivered, adds another 50%, or more, to the price), not to mention the standard “care & handling” charge of $3 (regardless of when you want it delivered). A guaranteed morning delivery on Valentine’s Day is another $15. Oh, and if you’ve procrastinated until the last week or so, you’ll find an additional $9.99 charge for “guaranteed Valentine’s Day delivery.” In sum, depending on when you get around to ordering those $20 roses, you could easily wind up spending three or four times that amount (but, hey—what’s it worth to you to stay in your sweetheart’s good graces?). And, most of that disclosure doesn’t happen until the screen right before you place your order.1

Of late, I have been talking about 2011 as “the year of disclosure.” It’s the year when I think most plan sponsors will begin really looking at those new 5500 disclosures, perhaps alongside those newly minted 408(b)2 disclosures (or would have until Friday’s announcement from the Labor Department that the deadline was being pushed back six months (see “EBSA Sets New 408(b)(2) Deadline for January 2012”).
Additionally, the issue of participant fee disclosure is back on the table, an outcome that will surely heighten the focus of plan sponsors on the issue.

The question, of course, is what will plan sponsors DO in response? For years now, there has been an undercurrent of thought that, once they saw what they were paying (and to whom), plan sponsors would rise up and demand change and/or a change in providers. Advisers would lead this charge, armed with these expanded disclosures, and the federal government would even play a role by not only mandating these disclosures, but providing plan fiduciaries with some “sticks” to spur compliance by reluctant providers (personally, I’d just find some new providers, but…). Indeed, all of this is being brought to bear at the same time, and the prospects for expanded, if not enhanced, disclosures seem bright.

Interestingly enough, these disclosures don’t really change the obligations or responsibility of plan fiduciaries to ensure that the fees paid and services rendered to the plan are reasonable. Indeed, most of the burden for disclosure falls on those who provide services to the plan, not the plan sponsor. That said, once the plan sponsor/fiduciary is apprised of such things in black and white (not to mention the Labor Department via the Form 5500), IMHO, it will be a lot harder to profess ignorance of such things.

Ultimately, I think those who provide services to these plans will be more thoughtful about the services they offer and what (and how) they charge for those services, and surely some will decide to no longer offer those services in this market and/or at those prices. Surely it will be easier—at least eventually—for advisers to help plan sponsors make apples-to-apples comparisons of services and costs, to make a more thoughtful—and prudent—determination.

That doesn’t mean that plan sponsors will act on that information. But then, if the process of disclosure has the kind of antiseptic effect we might hope it could have on the business of fees charged, then it’s entirely possible they won’t have to.

—Nevin E. Adams, JD

1 However startled one might be by the additional service charges on that online flower order, odds are your local florist charges about the same thing for the total package (with fewer options), perhaps without detailing the “extras.”

Sunday, February 06, 2011

“Money Back” Guarantees

We’re seeing a renewed focus on retirement income of late, and for good reason.

Most participants seem barely able (or willing) to deal with the most rudimentary decisions about saving, much less investing those savings; and while the industry has developed tools and approaches to better their odds, IMHO, those challenges pale before that of crafting a workable, widely accepted, and readily implemented retirement income solution.

Not that retirement income solutions don’t exist for participants. Setting aside the long-standing availability (and viability) of “traditional” annuities, over the past several years, a number of innovative solutions have been brought to market. Indeed, by my count, three more were introduced just last week.


Clearly the market for such offerings is large, and getting larger by the day—and yet, despite a great deal of time, energy, expense, and focus, well, let’s just say that plan sponsors (still) seem as confused by the variety of choices in that arena as they were (mostly) oblivious to the distinctions in target-date fund structures. And, quite frankly, they’re sceptical (if not downright cynical) in a way that they never were—but should have been, IMHO—about the ability of a fund complex to craft an investment allocation perfectly aligned with the needs of an individual’s retirement date.

Most trying to “solve” the retirement income problem presume that we already have a workable, viable product available—we need only figure out better ways to get participants into “it”. As a consequence, legislators (and some product providers) talk about things like “auto” annuitizing—the implementation of an annuity default for distributions to overcome resistance—while academics are inclined to focus on behavioral finance design modifications: better ways to “frame” or position the option, to “nudge” participants to make the “better” decision.

At its simplest, an annuity is nothing more than an investor handing over money (or a stream of money) to an entity that promises, at some point in the future, to return it to the investor, ostensibly with some kind of return, above and beyond whatever fees are taken. Consequently, at least in theory, a participant who has spent their working career saving for retirement should be able to take those savings and hand them to an entity that can return it over time as a retirement paycheck.

But that remains a big step of faith for most, particularly in the wake of the financial crisis. After all, who CAN, or should, you trust with that much money—literally your life’s savings?

Don’t get me wrong—I’m encouraged by the new product developments, the interest of regulators in helping lay out a better course, the suggestions and insights of the academic community in fostering better plan designs, and the willingness of plan sponsors to keep an open mind.

But ultimately, when it comes to spurring the widespread interest of participants, IMHO, the best product design will be one that offers them a “get your money back” guarantee (1).

—Nevin E. Adams, JD

(1) Editor’s Note: Let me attempt to stave off correspondence from the American Council of Life Insurers who, the last time I penned a column suggesting that participants might be a bit queasy about the notion of converting their savings into an annuity, wrote to assure me (and presumably all of us) that “The five trillion dollar life insurance industry, which alone can provide annuity contracts, remains a pillar of the nation’s financial system. While the effect of the nation’s economic downturn has been widespread, not one annuity owner has missed receiving annuity payments.”