Helping employees reach goals

The success or failure of a 401(k) plan isn't about its lineup of investment options for employees. It isn't about the fees an adviser charges for administering the plan, or the performance of the funds that participants invest in. It's about preparing participants for retirement. But as simple as that sounds, it's a relatively new concept in the 401(k) world. Historically, plan sponsors simply have designed their plans and left employees to figure out what to do. Increasingly, however, plan sponsors are considering the behavior of their employees, and determining ways to better educate them about how their financial decisions now will affect their retirement years. And they are looking to advisers to help them do that. “A good investment lineup and a good plan design isn't enough anymore. Plan sponsors and advisers need to do more to help prepare employees for retirement,” said Liz Davidson, chief executive of Financial Finesse Inc., which provides financial education programs to employees of more than 400 corporations, credit unions and municipalities. “We're moving from an environment of entitlement to empowerment, and plan sponsors are looking for advisers who bring that to the table.” The new role of retirement plan advisers is not just to tweak the fund option roster or redesign plans to lower costs, though those remain important functions. Increasingly, it is to devise strategies that engage plan participants in a discussion about their retirement and to change their behavior. It's a new touchy-feely dynamic, one that more closely approximates the retail advisory relationship. It focuses on the financial well-being of employees and their behavior as much as the allocation of their portfolios. It's a different job than it once was, and advisers used to drafting their plan designs and conducting presentations to corporate investment committees every once in a while may find it a challenge.

"PARTICIPANT EXPERIENCE'

“The next frontier is about changing the participant experience,” said Bill Chetney, executive vice president of the retirement division at LPL Financial LLC. “A lot of retirement advisers are pension geeks. They're quants, and experts on legal and actuarial issues. They are great at managing the institutional side of the relationship, but do they want to talk across the coffee table with people?” The change is being driven by very sobering statistics about the retirement readiness of average Americans. Issue No. 1 is Americans' low savings rate. Data collected by Financial Finesse showed that just 18% of employees said they are on track to replace 80% of their income in retirement. Only 26% have ever run a retirement projection for themselves. Americans are not saving enough, and more alarming still, most are not aware they aren't saving enough. Mr. Chetney, who sold his company, National Retirement Partners, to LPL two years ago, starts his typical engagement with a client by surveying the organization and its employees. Afterward, he gives the plan provider a report on the survey and a road map for seminars he plans to conduct with employees. “For the last 25 years, the industry has given employees 20 fund choices and expected them to create a diversified portfolio,” he said. “We're offering a more holistic approach to creating retirement readiness than, say, target date funds.” While Mr. Chetney can't deliver the same attention to 401(k) participants that million-dollar clients get from a financial adviser, he does tailor communications to groups and individuals about issues important to their finances and retirement. “We want to be in the workplace regularly, talking to participants about financial issues,” he said. Advisers to large corporate plans now are expected to be able to address a wide range of financial issues that affect their participants' retirement. It's a major challenge, given that most participants don't want to talk about the subject, said Barbara Delaney, an adviser with Stone Street Equity LLC, which serves 90 retirement plan clients with $3 billion in assets.

CUSTOMIZE THE MESSAGE

“Sponsors want more-engaging workshops attuned to what's happening in their employees' lives,” Ms. Delaney said. She customizes seminars for participants of different age groups, focusing on issues they commonly face. For people in their 20s, the discussion could be about fixing credit scores, budgeting or paying down college loans. The 30-somethings discuss Section 529 college saving plans and mortgages. For employees in their 50s and 60s, Social Security considerations, health care and account withdrawal rates could be covered. Roy Richter, president of the New York Police Department Captains Endowment Association, has been relying on Ms. Delaney's support for the 4,000 participants in the association's defined-contribution plan. “We needed to give our members some guidance and education on investments,” Mr. Richter said. “We wanted to identify their life goals and objectives, as well as their risk tolerances.” He accomplished it with a series of seminars on financial subjects, and plans to offer more-specific guidance on investment allocation issues in the future.

WIDE DEMANDS

Large sponsors now are expecting their advisers to cover everything related to the plan, and the demands are favoring firms that specialize in the retirement market, said Trisha Brambley, president of Retirement Playbook Inc. and a former adviser who now performs due diligence on advisers for plan sponsors. “The sponsors are looking for a consulting team,” she said. “They want a pool of resources and a group that can help with every topic related to their retirement plan.” Increasingly, that involves engaging employees more actively and helping them plan more effectively for retirement. Good plan design and investment management are still major responsibilities for retirement plan advisers, but these days, clients expect more. “Investments are a big part of the equation, but what's the use of a great lineup of funds if no one is using them?” Ms. Delaney said.