More On Legal & Compliancefrom The Advisor's Professional Library
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
A panel of top advisors took to the stage during the afternoon keynote at ASPPA’s 401(k) Summit on Sunday, all of whom were nominated for the 2012 401(k) Advisor Leadership Award sponsored by Morningstar Inc. Prior to the announcement of the winner, the advisors discussed major trends affecting advisors in the 401(k) space.
The nominees were Plan Sponsor Advisors from Chicago; Greenspring Wealth Management of Towson, Md., and Retirement Resources Investment Corp. of Peabody, Mass. The finalists were selected from more than 80 nominations submitted by peers and colleagues in the retirement plan industry. Plan Sponsor Advisors won the Leadership Award.
The panel was hosted by Will Marquis, defined contribution and retirement plan manager with Morningstar.
“It’s an interesting time in the advisory business; there’s opportunity, but that opportunity can also be scary,” said Josh Itzoe, managing director of Greenspring. “Plan sponsors are realizing fiduciary is a verb, rather than just a noun. Simply calling yourself a fiduciary is not a sustainable differentiator. You must act like one through tenured experience, thought leadership, and training and continuing education.”
There is an increasing focus on fees, which is leveling the playing field for clients, he added. Accountability for the level of service advisors provide will also be an area of increased focus.
“Plan sponsors want to focus on running a business, and they’ll increasingly look to advisors to help them do it,” Itzoe said. “The investment process is commoditized and is something we spend only about 25% of our time on. What we do the rest of the time involves back-end issues like governance, documentation and benchmarking. These aren’t as forward-facing as the investment process portion, but we see these as the real factors that keep clients happy.”
Patrick McGinn and Jim Phillips of Retirement Resources Investment Corp. then took over. Phillips said there is greater recognition among clients that they’ll have to provide for their own retirement, driven by solvency concerns over Social Security
McGinn said contribution percentages are becoming more realistic, and 10% is now the baseline. McGinn also rhetorically asked how a company match can be used to affect employee investment behavior.
Phillips noted the firm’s recent success with postcard campaigns that make it simple to increase contributions.
“We had set amounts from which they could choose as well as an area to write in the amount by which they wished to increase their contributions,” Phillips explained. “Because we made it easy for them to do so, we had 23% of the individuals increase their percentages.”
“We have to turn participants into decision makers, and train them to make their own smart decisions,” McGinn concluded.
Plan Sponsor Advisors’ Don Stone said plan design had “never been more important than today, which offers and immense opportunity for advisors."
“The way in which defined contribution plans are currently structured will not provide people with enough income for a dignified retirement,” Stone said. “Plans must focus on more sophisticated designs that align with investor objectives.”
Plan sponsors must also think differently about their definition of success, he added. Today, it’s about participation rates and contribution percentages, but advisors must think about what these really mean.
“As advisors, how would you feel about your career if after 30 years, no one is retiring successfully?” he wondered.
ASPPA executive director and CEO Brian Graff and John Rekenthaler, vice president of research for Morningstar, then joined Marquis on stage to present the award to Don Stone and his team at Plan Sponsor Advisors.
For more onsite reporting on the ASPPA 401(k) Summit, view our landing page.