From the September 2017 issue of Investment Advisor • Subscribe!

New Solutions for Familiar Retirement Challenges

Fintech companies are expanding into the retirement business to give advisors and DC plan participants better outcomes

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During a recent class on investing basics she taught to a group of women, Kristen Euretig, a financial advisor in Brooklyn, New York, was asked many questions about 401(k) plans. Her audience even asked if she could come back and teach a special class on the basics of 401(k)s and retirement planning.

“They told me that they would log into their 401(k)s, but they did not know what was going on or what to do,” Euretig said. “Actually, I wasn't really surprised because in my experience, most people seem totally lost when it comes to 401(k) plans. When I help my clients with their 401(k)s, I often have to go back and forth with them to get the information that I need because they don't understand why it's relevant, and they just don't know where to find that information.”

It's been 30 years since 401(k) plans were introduced into the marketplace, and though the space has come far in terms of efficiency and transparency, company retirement plans still have a long way to go to act in the best interest of participants. Increasing participation rates and plan monitoring are still a challenge, and in today's highly regulated world, the onus on plan sponsors to act as fiduciaries and ensure that participants can meet their objectives in the most meaningful and efficient manner is even greater than before, said Shelby George, senior vice president of Advisor Services at Manning & Napier.

Fortunately, progress in technology now makes things easier, George said, and allows fiduciaries to really fine-tune their understanding of their 401(k) plans and participants. Today, there are technology solutions that help better identify clients’ needs at different life stages and give plan sponsors the ability to customize messages that facilitate savings in a way that wasn't possible before.

Technology can also provide services to better customize managed account portfolios based on the ages of plan participants, their investment objectives and how far from or close to retirement they are, she said.

“There is a lot of innovation when it comes to technology — new services and capabilities — and all of us are trying to keep pace with the innovations as they come,” George said.

Technology and the DOL Fiduciary Rule

The DOL regulations have upped the ante on what it means to actually manage a retirement plan in a way that benefits participants and their long-term retirement success, said Pete McNellis, senior vice president of dailyVest, a fintech company. One of the main components of that endeavor is identifying which funds offered in retirement plans are performing well, which are not and which may be too expensive. This is an important factor, McNellis said, in making sure that plan participants can meet their individual retirement goals.

“It could be that an individual participant is young, for example, and has had a consistently low-return portfolio that may require an intervention,” McNellis said. “Without technology, though, who knows that and who can tell? Our technology makes it easier for fiduciaries to reach out to people with those kinds of interventions.”

DailyVest's new PlanAnalytics OneClick Dashboard helps retirement plan administrators take a more informed and proactive approach to managing their plans’ health, while bringing together the flexibility of anytime-anywhere plan management through online access via computer, tablet and smartphone. PlanAnalytics reduces the complexities associated with compiling and analyzing raw plan data needed to assess plan health, and the OneClick Dashboard displays key plan metrics such as participation, investment diversification and contribution rates to show where defined contribution plans are succeeding and where they might need help.

“We gather and consolidate data for everyone in a plan and run a lot of calculations, not only from the standpoint of the median point of return of everyone in that plan, but also on the participation rate [and] whether the target date funds in the plan are diversified. The kinds of factors that many fiduciaries would agree are indicators of plan success are the things we have our eye on, and that we look at the data for, in order to come up with good analytics,” McNellis said.

As fiduciaries look to make retirement plans more successful for all participants, one of the more important factors they should be paying attention to, in George's view, is participants’ ages.

In most cases, she said, auto-enrollment or re-enrollment (both hallmarks of greater plan efficiency) tend to benefit younger employees whose focus is on accumulation, rather than older ones who are closer to retirement. As such, investment objectives and the investment products that enable those objectives become more critical, “so it's important to have tools that allow for more sophisticated research on asset class exposure to help people as they move through the planning process and through the different points in the economic cycle,” George said.

Helping RIAs Grow Company Plan Business

With so many moving parts to bring together to ensure optimal retirement plan performance and monitoring on both the design and investment fronts, Aaron Schumm, CEO of Vestwell, is of the opinion that having one port of call to do everything makes the most sense. He believes that allowing an advisor to have total fiduciary responsibility for a retirement plan is optimal in today's world, and also allows for the best use of technology. Shifting the fiduciary burden to an advisor from a plan sponsor via technology allows the advisor to provide an additional level of service that is beneficial to all, he said, and makes for better designed, efficient and inclusive plans.

Vestwell's proprietary software makes it easy for RIAs to expand into the company retirement plan space — a process that's often complicated and expensive for advisors — and gives them a turnkey solution for seamless plan design, automated onboarding and low-cost investment strategies.

The system includes automated compliance notices and documents, a dashboard where all plan information is easily viewed, and annual, automated compliance testing, all of which allow plan advisors to better focus on their clients.

“The goal is to help people save, but you have to provide tools for that and leverage those tools over the long haul in order to narrow the retirement savings gap,” Schumm said. “Using technology to better equip an advisor will help narrow this gap and make retirement plans more efficient.”

Over time, Schumm would like to see an advisor be able to take charge of a participant's retirement planning through the entirety of their careers.

“When you’re young and starting out in the professional world, and then you leave a company, that becomes a rollover IRA,” Schumm said. “Instead of having a series of these rollovers, the best [approach] would be for advisors to look across the whole spectrum holistically and determine the best way to implement an investment strategy that makes sense at the individual participant level.”

Schumm believes that technology has the power to do that and is in the process of figuring out how to create the best platform for it.

“We are working with data aggregation partners to bring wealth and retirement under one umbrella by pulling in outside assets,” he said.

“This is how you provide real advice to people. This is where it becomes meaningful, so that when you flip someone's asset to a rollover bucket, they don't need to leave the platform it is on,” explained the CEO. “The advisor can step in and have a one-on-one relationship with that person and can help them over the course of their life. This is how people will become more engaged.”

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