Every once in a while I recall how much influence I have on the people that I work with at my plan sponsor clients. I provide guidance on their retirement plan and they often ask for additional assistance on other financial matters.
It is gratifying that I don’t feel the need to persuade them to buy other investment products or ideas. I derive no additional compensation from them from the decisions they make on how to invest their funds in or outside the plan. In fact, our contract with our clients makes it clear that we cannot generate any additional revenue from staff (we have nothing else to sell anyway, so it doesn’t matter).
Last year I submitted a guest post for the White Coat Investor on sales tactics used by financial advisers. I saw a very cynical though likely accurate comment in the follow-up to the blog. In the thread I mentioned that it was disappointing that an employer was not vetting the presentations provided to residency students. The follow-up comment was: “No one vets anyone, anywhere.”
This got me to wondering how many employers take the time to review and understand the guidance provided to their employees? Do they review the presentations to staff? Do they ask to see what a retirement projection might look like? Do they determine what interest rates their advisory firm is using in projections? Do they understand what other products their employees might be purchasing from the broker or advisory firm?
I could list several more questions but you get the point. I understand employers value the assistance advisers provide to their employees – this is what we do at PlanVision. It can clearly make a difference in how well employees understand and get the most out of their retirement plan. But it is also critical for employers to make a distinction between education and guidance and veiled sales presentations.
I am sure it is just me, but I think it would be great if the DOL added a field to the Form 5500 to indicate how much advisers or broker/dealers generate in revenue from non plan related transactions for employees still working at the employer. This could be required small plans and would be very revealing!
My wife took a new position and I was reviewing the paperwork she will use to set-up her 401k account. The provider is well known in the retirement plan industry – Principal. It struck me how the paperwork emphasized that she can transfer prior retirement assets into her new account. Is this a big deal? Maybe not. But her new plan has higher fees than her individual IRA.
I am skeptical that Principal is objective in explaining this. Based upon their revenue structure, they generate more revenue as the plan grows. Of course, plan assets will increase with new employees, more contributions, market growth, etc. This is good for the participants and the plan. But shouldn’t employees fully understand their options and the implications of their decision with funds they could voluntarily transfer into the plan?
It is virtually scandalous how financial services firms use smaller employers’ retirement plans as an opportunity to sell products to the plan participants. If pressed on it, I cannot image any of these organizations seriously denying their intentions. But until some employers make it a point to limit product sales to employees, it will continue to happen.