From the April 2007 issue of Investment Advisor • Subscribe!

Retirement Planning Balancing Act

Being an advisor who focuses on selling and servicing corporate 401(k) plans is a matter of balance, says David Tyrie of Putnam Investments. "It's not a seesaw any more--you have to balance at least three different constituents," he argues: participants; plan sponsors; and the advisors themselves who must be able to make a living from the plans. There must be obvious benefits for each of those constituents, which is why, he says, the Pension Protection Act (PPA) is such a positive development, particularly for workers. Everything behind the PPA "is geared around the participant; it's made plan sponsors take much more seriously their responsibilities to participants."

Putnam has about $60 billion in retirement plan assets, serving 1.2 million participants, says Tyrie, and slightly more than 800 401(k) plans, according to the latest Investment Advisor retirement plan partner directory. Tyrie, the director of retirement services at Putnam, discerns many positive trends surrounding retirement planning that will benefit plan participants, and the advisors who are prescient enough to specialize in achieving that balanced approach. That's because advisors can provide such an important service to plan sponsors, since they can "look at the entire picture--choose the right plan, make sure participants are educated correctly, and that they have the greatest likelihood of achieving a successful retirement."

While the foundation of the PPA is focused on the participant, Tyrie notes that on the plan sponsor side of the equation, "it's all about the fear factor--fiduciary and liability--but we know the name of that game: if you're near the scene of an accident, you're a fiduciary, guaranteed."

On the issue of 401(k) fees, which has become a cause celebre in Congress and among many advisors, Tyrie suggests that "two years from now, it won't have anything to do with the fees, it will all be about value--What are you getting for the fee? How do I say fees are too high or too low if I don't know what I'm getting for those fees?" So does that mean there will be more transparency when it comes to 401(k) fees? "Absolutely," Tyrie responds.

As one sign of how transparency around fees will change, Tyrie points to the revisions to IRS Form 5500, which retirement plans must file each year. "Under the PPA, by 2008, your 5500 filing will have to actually show all the fees that are being paid to the advisor, and for which services. Nothing's going to be hidden in the future."

When it comes to Putnam's plans to partner with advisors, Tyrie suggests that there is a core group of advisors that the firm will pay special attention to.

"There are 350 advisor teams out there who make their business retirement; these people are experts," and they're moving upstream, going after not just the smaller plan--the $1 million to $20 million plan, long the domain of the independent advisor--but bigger plans, those with $20 million to $500 million. To pick up those plans, Tyrie suggests, advisors will need to be proficient in the legal and public policy issues surrounding retirement. That proficiency will become even more important since those fee-based advisors moving upstream will increasingly be competing with the traditional pension plan consultants who are moving into the lucrative higher-end DC plans. He also argues that those advisors will need to work with partners who are willing to customize plans, including open architecture investment options, to meet the needs of larger plan sponsors, using the analogy of a custom-made suit rather than an off-the-rack suit. "Three years ago, the average plan we booked at Putnam was $8 million. The average plan to date this year is $50 million. It's moving up, pretty quickly."

As for plan sponsors, Tyrie says the PPA has given them "a better feeling for doing the right thing. You've got to make sure they are comfortable with and knowledgeable about their fiduciary responsibilities, which is what? Documentation. That's it. It's all about documenting what you're doing, documenting your decisions, and making sure those decisions are in the interests of participants."

Should advisors need confirmation of the importance of advice when it comes to retirement security, research conducted by Putnam confirms the link. A 2005 survey of retirees who had returned to working found that those who had used an advisor were 15% more likely to be satisfied with their retirement. Moreover, that same group had 50% more investable assets than working retirees without an advisor.

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