How Advisors Can Capitalize On PPA's Advice Provisions

Employers that provide computer-based planning models through the retirement plan will likely play a major role in how individuals are advised. However, when using these tools, all but the most sophisticated of investors are going to require a trained advisor’s assistance to help understand and interpret the results. The models will serve as a starting point in answering how best to prepare and prosper in retirement, but they will not be a self-contained solution.

Advisors who currently help advise employees on supplemental benefits (e.g., long-term disability, supplemental life, etc.) have a tremendous opportunity, since they are in the right place at the right time. Their existing relationship with the employees puts them in a position to provide retirement advice and help interpret the computer-based planning model. However, advisors will likely need additional skills, training and background about the risks and opportunities in individual retirement planning.

Advisors can benefit from either choice an employer makes regarding investment advice. If the company elects to offer advice without incorporating a computer-based model, it will need to partner with an advisor who is willing to work on a level-fee basis. Advisors who are willing to adopt this business model can step in and be the advisor of choice for employees in the plan.

On the other hand, if the company decides to incorporate a computer-based planning model instead of a level, fee-based approach, advisors can still capitalize. For instance, those having their own planning model may be able to incorporate it into the retirement plan. If that can’t be done, these advisors still have an opportunity to help employees understand, use and benefit from the plan’s computer-based planning model.

For individual advisors not currently working with employers, PPA offers one opportunity and one ancillary benefit. The opportunity is that advisors can still help employees plan their retirement. Even when a plan has a computer-based planning model, employees will be looking for supplemental advice and guidance. Strategically marketing to employees that have recently been introduced to computer-based planning models could lead to a significant number of new clients.

The ancillary benefit is the trickle-down effect of the certification/audit requirement of computer-based planning models. PPA, as drafted, only applies to computer-based planning models in retirement plans, not in the retail market. However, once the requirements are in place on the employer side, more scrutiny will likely be applied to retail planning tools. This will dramatically increase individual advisors’ access to quality computer-based models, enabling advisors to provide better advice than before.

As new retirees manage their own investment safety nets, they will require more reliable advice. To help meet this need, the PPA has opened the door for retirement plan providers to offer planning tools and advice to plan participants. Additionally, because provisions of the PPA may not fully meet the needs of most individuals, advisors have an opportunity to help fill any information and advice gaps as individuals transition from their saving years to their spending years.