Key trends in the retirement plan business were the subject of a recent webinar hosted by Vestwell, a digital retirement platform. Although looking at 401(k)s in particular, the group of industry experts saw ways the advisory industry will keep expanding and changing, especially in retirement plan area.
Here are four highlights of the session:
1. Pooled employer plans will gain traction.
About 50 entities have filed to roll out pooled employer plans or PEPs, which through the SECURE Act, allows smaller employers to group together to form a 401(k), though these efforts are in the early stages.
Fidelity recently said it was planning a PEP for the smaller firm market, said Fred Barstein, founder and editor-in-chief of 401k TV. “This [can be] the most dramatic change and an opportunity for retirement plan advisors,” Barstein said. “Or not.”
Advisors should understand these products could help their business clients because they could limit fiduciary liability and lower costs. “Advisors should be looking at these as they could be a game changer, a Retirement 3.0 — 2.0 being the Pension Protection Act of 2006,” Barstein said.
David Stofer, Mariner Retirement Advisors founder & president, agreed, stating that this is a great product for small-business clients, those that don’t have a separate human resources department but want to do something for their employees at a fair cost.
It also helps the advisor, he said, as “[they] can finally be more scalable because you can’t give a custom solution to 75 $2 million plans. It just doesn’t work.”
2. The Biden administration could shake things up.
Three areas where the Biden administration could make retirement plan changes are 1) relaxing rules to allow environmental, social and governance products into retirement plans without Labor Department hurdles, 2) tax rebates and 3) allowing student loan repayment options within retirement plans, said Aaron Schumm, founder and CEO of Vestwell.
Barstein agreed that Labor’s ESG rule will be reversed “right away,” and it’s possible it will become “the default option” for funds. He added that as “retirement seems to be one of the few bipartisan areas” for Congress, he sees passage of some type of bill that mandates more than auto-enrollment and auto-escalation in 401(k)s.
“We’re starting to see rumblings that [changes will] focus on the decumulation phase … there’s a proposal out there that [a certain] percent of your outbalance goes into some sort of annuitization,” he said.
3. Managed accounts will continue to grow.
Stofer said that when they did presentations to employers and employees, only 25% of the questions focused on the 401(k), while the rest asked about individual issues, such as how to pay down a credit card or a student loan.
“We charge an additional fee for education [and clients] bought into that,” he said. “It is now being offered through the financial wellness and there’s a separate fee for that additional service.”
Stofer also believes managed accounts will continue to grow. “One reason managed accounts are becoming more popular is it is a way to provide advice and education to the participants, even though it’s not as much about managing the money,” he said.
A Vestwell survey found that one in four advisors plan to offer managed accounts this year. Schumm noted that “it is a way to incorporate a more personal advice solution aside from your traditional target date offerings.”
He added that there were a some reasons managed account acceptance has been slow: Technology incorporation was weak, which made the accounts “cost prohibitive.”
This is changing, he says, and it’s a “much easier conversation” for an advisor “to take someone from a target date plan and roll them out to a personal wealth account over time.”
He thinks this is a “good thing, and that it kind of starts to meld the world of wealth and retirement together a little bit more.”
4. Decumulation options will be part of retirement plans.
Decumulation, especially with an aging population, will grow in importance, Stofer said.
“[Although] 401(k)s have been successful and people are saving money, as an industry, we haven’t done a great job of helping people on the spend down,” he said, adding that the decumulation side of retirement savings is “every bit as important as the accumulation.”
When asked about annuity products, he said they have a bad rap because some are bad but many have been sold wrong. “There are some good solutions out there if properly sold,” he said.
Schumm agreed. “Being able to incorporate that from kind of a soft landing managed outcome to a guaranteed income type structure in someone’s career has not really been nailed yet,” he said. “[But] there’s a lot of people working on it. A lot of people talking about it.”
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