The benefits advisors who spent the late 1990s using stories about 30% annual returns to drum up 401(k) business are now doing something else.
But experienced, knowledgeable retirement services experts say this can be as good a time as any to be selling 401(k) plans.
“The need for retirement plans is independent of what the market is doing,” says Richard Glass, president of Investment Horizons Inc., Pittsburgh, a retirement plan education firm. “Regardless of what the market is doing, people have to start saving.”
Stock prices might be down, and bond defaults might be up. But census figures show that 75 million U.S. residents will be reaching retirement age over the next four decades.
Mutual fund flow figures from the Investment Company Institute, Washington, suggest that consumers continue to understand the importance of continuing to save for retirement, even at a time when market indices look grim: ICI reported that U.S. investors shifted $53 billion out of stock funds in July. Net outflows amounted to 1.7% of stock fund assets.
But, grim as the numbers look, they mean that investors kept 98.3% of their stock fund assets in stock funds, during a month when stock prices looked as if they were sinking toward the earths molten core.
Sellers of retirement plans are facing some serious marketing headaches, partly because the modern 401(k) plan and modern mutual fund industry came of age together in the early 1990s, at the beginning of one of the longest, strongest financial booms in the history of the world.
Many of the advisors and money managers who entered the retirement industry during the period came to view the idea of putting 40% of a retirement portfolio in bonds as being as odd as the idea of investing 40% of the assets in gold coins or bomb shelters in Montana.
Now, the NASDAQ National Stock Market is down about two-thirds from its peak, and the Dow Jones Industrial Average is down about one-third. For most 401(k) plan participants, the grim joke that their plans are now “40.1(k)” plans is not literally true. But a recent survey commissioned by The Allstate Corp., Northbrook, Ill., found earlier this year that middle-income U.S. residents total retirement savings had fallen 22% between 2001 and 2002, to an average of $93,000.
“Before,” Glass says, “people were bragging about how much money theyd made. Now, theyre scared. Theyre asking themselves how they can afford to retire.”
Although members of Congress have passed some corporate governance reform legislation and continue talk about enacting additional reforms, many advisors, financial-services company executives and regulators say the most important changes will come from within the 401(k) industry.
“Information and advice–rather than restricted choice and over-regulation–are the strategies that will protect workers and retirees while fostering the continued growth of the private, employer-sponsored retirement system,” Angela Reynolds, a representative for the American Benefits Council, Washington, testified earlier this year at a U.S. House employer-employee relations subcommittee hearing on 401(k) plan reform.
Thanks to recent poor 401(k) plan performance, reputable plan sellers are having an easier time getting appointments to talk to prospects than they might have expected, marketers say. The sellers are trying to address the prospects skepticism by talking about new, improved participant education and communications programs.
A survey commissioned by The Phoenix Companies Inc., Hartford, revealed that wealthy individual investors have more complaints about advisors who fail to keep in touch than with advisors who have trouble conjuring profits out of bear markets.
Phoenix discovered that only 9% of the investors polled in March were extremely or very dissatisfied with their financial advisors.
Although many of the investors who were unhappy enough to shop for new advisors were upset about poor investment returns, 51% said they were shopping for new advisors either because the advisors failed to try hard enough to reach out to them, or the advisors failed to respond when the investors tried to contact the advisors.
Glass sees a similar attitude shaping the retirement plan market. “In crazy markets,” he says, “people want hand-holding.”
When KRC Research, Washington, surveyed 750 U.S. employees in July and August for the retirement and investment services unit of CIGNA Corp., they found that 89% welcomed the idea of employers providing personalized financial planning advice, and 83% wanted their employers to offer more investment education and information tailored to meet their personal needs.
But resources for hand-holding are scarce: the typical plan spends less than $4 per participant per year on education, Glass says.
Benefits advisors recommend that plans fill the education void by making more use of the Web, written materials and old-fashioned face-to-face meetings to help participants learn about the importance of diversification, and the importance of expecting the unexpected. “People have to understand that no one can predict the future,” Glass says.
But he is willing to predict that the advisors who take the time to educate plan participants will end up with the best results.
In the long run, Glass says, the advisor who has the relationship with the participants is the advisor who gets the individual retirement account rollover assets.
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 7, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.