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November 02, 2009 at 07:00 PM
In today’s economy, the road to retirement is more like the road to recovery. Retirement plans have lost some $4 trillion in the past 15 months. Foreclosures are at a record high and the stock market has seen the worst declines in 8 decades. However, as John F. Kennedy said, “In a crisis, be aware of the danger, but recognize the opportunity.”
Ironically, the opportunity for advisors in the current environment is an unfortunate consequence of the financial crisis: layoffs. The nation has lost 5.7 million jobs since we slipped into a recession in December 2007. For advisors, that means 5.7 million potential rollover opportunities. 
While the opportunity for rollover business is big, the competition has gotten even bigger, due primarily to a changing regulatory landscape. The much-discussed 2006 Pension Protection Act gave record keepers the ability to provide automated solutions. For years, record keepers have been concerned about assuming too much fiduciary responsibility and were hesitant to offer automated tools and advice. However, this is no longer the case. Record keepers are retaining the assets that would have rolled over in the past. And with trillions of dollars in motion, they are competing head-on with advisors.
Now is the time to put yourself in position to capture rollovers. Go to the source by working with investors while they’re still employed and accumulating assets in their individual 401(k)s. In a 2008 Gallop Poll, 54% of those surveyed said 401(k)s are a major source of their retirement plans, and most of those respondents said they intend to rely almost exclusively on those funds for retirement. You may not profit from your efforts in the short term, but you can build and maintain key relationships through individual 401(k) management that will pay off in this market.
401(k)s on life support
It appears that 401(k) plans are in need of major surgery. In fact, the average 401(k) is down in value nearly 30% in the last year. And 20% of those who need to step up retirement contributions–workers age 45-plus–have actually stopped contributing.
While 401(k) plans have recently come under fire from politicians and scholars calling for reform, there were problems with these retirement plans long before the current crisis. It is important to note, however, that many of the problems did not originate with the plans, but with investors.
The dramatic switch from defined benefit to defined contribution has characterized a new generation of investors who are undisciplined, uneducated and greatly in need of professional advice. Participants in 401(k) plans make many mistakes, but they generally fall into 5 main categories:
? Participation
? Portability
? Loans
? Investment Errors
? Education
Participation: Scheduling a check-up
Let’s face it: Too many Americans are not participating in their companies’ retirement plans. Research indicates that only half of America’s workforce participates in an employer-sponsored retirement plan, while just 10% max out their contributions.
A guiding principle of the 2006 Pension Protection Act was to help combat poor participation rates. As a result, many companies have established automatic enrollment plans, in which employees are automatically enrolled in their plan unless they “opt out.” Employees who are automatically enrolled sometimes rely too heavily on the company default allocation, which is typically too conservative to generate an adequate retirement nest egg. In fact, employees who enroll under an automatic enrollment plan tend to remain at the default allocation nearly 75% of the time. Even those who proactively enroll in their 401(k) plans often fail to revisit the plan or regularly update allocations.
