2009 is the Year of the Advisor - a recent article by Fred Barstein

2009 is the Year of the Advisor
by Fred Barstein

With the popularity of Target Date funds and the Auto Plan as a result of the 2006 Pension Protection Act (PPA), some observers had opined that advisors would become less important in helping companies with their corporate retirement plans. If participants were automatically enrolled and fund selection is controlled by the target date providers, what would be the advisors’ role? So why are more and more plan sponsors abandoning the direct sold model and hiring advisors at an incredibly growing rate?

As shown in the chart below based on almost 20,000 surveys in 2009 and close to 3,500 in May, over 80% of DC plans with less than $100 million in plan assets indicated that they were using an independent financial advisor. Compared to last May, there’s a stunning increase trending even higher. Retirement advisors roles have changed over the years from:

Selecting the right products and vendors, to
Creating the right process with a focus on fiduciary concerns, to
Managing to the right outcome for participants and sponsors

More plan sponsors than ever realize that not only do they need an advisor to protect them from liability (process), manage costs and limit work for diminishing HR and finance staffs, participants need someone to speak to or be available to answer thorny questions, especially after the recent market meltdown, like, “What happened to my account balance?” or, “How will I ever be able to retire?”

Many of the most popular target date providers have failed their 2010 clients either out of greed, ignorance or neglect. Fewer plan sponsors are instituting automatic enrollment because they have to match up to 2.5% to qualify for the PPA’s safe harbor provisions. Bob Reynolds, CEO at Putnam Investments and architect of Fidelity’s DC business, wisely suggested at the recent 401kWire Thought Leader’s Summit in DC that all participants should be automatically enrolled and sponsors that match should be rewarded with a tax credit. But until then and perhaps even after, the notion that sponsors and participants can be guided from above without expert, human advice is ridiculous. There will always be some challenge facing sponsors and participants that only an experienced retirement advisor can answer. Clearly, more sponsors are coming to that realization and, of those selecting an advisor, more are becoming discerning buyers. Fewer sponsors are hiring family members, college roommates, golfing buddies or personal financial consultants who do not have the necessary experience realizing that these kinds of “favors” can result in disaster, especially for participants in need of answers to very difficult questions.

Integrity Financial Corporation helps business owners evaluate and make smart financial planning decisions on behalf of their business. Please visit our website at www.ifclegacy.com and take advantage of a free intial 401k consultation.