Much is written of the importance of personal retirement planning, but the value of corporate retirement plans is often understated. In this article, my colleague Paula Friedman—Managing Director of Employer Retirement Plans at McLean Asset Management—discusses the role retirement plan advisors play in retirement income planning. I hope you find it valuable. –Wade
A great deal of media coverage has recently been given to the conflicts of interest associated with providing investment advice to retirement accounts. However, little has been said about what else to expect from your company’s retirement plan advisor.
I am often asked how a retirement plan advisor differs from a traditional financial advisor or wealth manager. Many people assume the titles are interchangeable since both roles relate to investment advice and financial planning, but they are not. A traditional financial advisor helps individual clients plan for life events, while a retirement plan advisor focuses on helping corporate clients manage their employer-sponsored retirement plans.
The roles do overlap in some ways. Both have core competencies in investing andplanning for retirement. Their specific expertise is what separates them. For example, advisors who work with individuals and families typically specialize in tax, insurance, and estate planning. Retirement specialists focus on plan operations and design; compliance and fiduciary responsibilities; and the overall retirement plan marketplace.
You might think of it this way: if you hire a financial advisor who serves individual clients to work on your company’s retirement plan, it would be like going to a foot doctor for chest pain. Both may be doctors, but their expertise and experience cater to different areas.
Why Do You Need a Retirement Plan Advisor?
A plan advisor works with employers to establish a plan that meets their needs and guides them toward a financially secure retirement. Once a plan has been established, the plan advisor works with employers to maintain and update it as needed.
Every company has different goals for their retirement plan. A plan advisor helps cater the retirement plan to your company’s specific needs. When designed properly, a retirement plan can accomplish a variety of objectives:
Maximizing contributions and benefits for owners and key executives
Incentivizing employees to save for retirement
Aligning employer contributions to the plan with company profitability
Recruiting and retaining top talent
Educating employees about retirement planning, investing, and other financial concepts
Helping employees understand how much potential income they can generate from their accounts in retirement
Highlighting the impact of employer contributions to the plan and how it affects future projected income in retirement
Keeping fees reasonable and transparent to help account balances grow
Plan advisors work with you to translate company objectives for the plan into reality, while providing education and guidance on operational best practices along the way. They also offer input on how to design the plan, communicate its benefits to employees, and avoid compliance issues and penalties after the plan is up and running.
Retirement plans are complex, and the rules are constantly changing. Employers typically don’t have the time or bandwidth to learn the ins and outs of running a retirement plan—they have their own business to worry about. Working with an experienced plan advisor allows companies to offer their employees a robust plan without losing focus on their business.
How to Get the Most out of Your Retirement Plan Advisor
Investments offered in a retirement plan often receive a great deal of focus from employees and employers alike. While investments are an important tool used to grow savings over time, they are only part of a successful retirement plan. Strong investment performance doesn’t do much for long-term account growth if it isn’t coupled with sufficient ongoing contributions. In addition to helping employees find the right investment mix, a retirement plan advisor can help them understand how much they need to save now in order to meet future income goals in retirement.
Uncertainty surrounding the future of Social Security, the current state of the economy, and paying expenses and debt can all contribute to financial stress. As people worry more about their finances, their health and productivity are affected negatively, which can lead to performance issues in the workplace. Providing access to an objective financial professional through a workplace retirement plan has been shown to increase employee retirement confidence and preparedness.
A workplace retirement plan generally represents the majority of a person’s savings. Employers who offer access to an advisor through a plan provide an enormous benefit to their staff. An advisor can help employees with various aspects of their financial lives—from saving for retirement to planning for other significant events and goals. These can often be the most overwhelming aspects of personal finance, and expert advice can help remove some of the stress.
Recent studies have shown that employees want help managing their 401(k) and other retirement savings accounts. Research also shows that employees who receive professional investment management have higher account balances and better investment performance than those who do not. Unbiased, professional guidance will not only add to your existing benefits package, it will improve employee engagement and their ability to retire on their own terms.
Why Employers Should Care
We are about to mention a word that makes most people cringe: “fiduciary.” We won’t get into the minutiae, but here’s the big picture: employers that sponsor a retirement plan (referred to as a plan sponsor) and people with decision-making authority for the plan are most likely considered a fiduciary. As such, they are obligated to operate the plan in the best interests of the participants. Failure to put the plan participants’ interests ahead of their own may result in personal and professional liability for each plan fiduciary.
As fiduciaries, employers need to understand that not all advisors are the same. Some accept legal responsibility for their advice and acknowledge their fiduciary status in writing. Others have no “skin in the game” and don’t act in a fiduciary capacity. Don’t rely solely on a financial professional’s title to determine their level of fiduciary responsibility. Make sure you understand what the title means and what the person did to earn it.
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