The 20 Rising Stars of Retirement Plan Advisors 2007 - (Page 12) sponsored article Materials were sometimes supported by an onsite enrollment meeting (which may or may not have been mandatory) given by a representative of the company’s retirement plan provider. That person stood at the front of the room, with a projector and slide show presentation, and methodically ticked off all the reasons we needed to save, and why the 401(k) plan was the perfect way to do it. This approach exists to a significant degree, even today. However, most industry professionals would agree that simply giving 401(k) and other defined contribution account participants passive advice and education such as this, with the expectation they will prudently manage their own retirement accounts, has failed. Government and retirement plan providers have been left to look for alternative solutions that will work. Fast forward to 2001 and the Department of Labor issues what is known as the “Sun America Opinion.” That opinion essentially helped create professionally managed 401(k) accounts and was the first attempt at giving more active support to plan participants. Online advice providers arrived on the scene thereafter and invested millions of dollars in technology to deliver complex, computer-modeled advice via the Internet (such as Monte Carlo simulations and the like.) in print or electronically, most retirement plan participants remain uncomfortable and ill-prepared to make investment and savings decisions. They desire proactive communications, human contact, and a personal annual review to assure that they are on track in meeting their personal retirement income goals. In support of this point, a 2006 Scarborough Group survey found that 72% of participants would prefer to use personal management for their 401(k) plan (meaning an advisor provides personal investment advice and also manages their account assets.). Only 20% of participants said they would prefer an Internet-based form of advice, and only 4% of participants said they would trust advice generated from an Internetbased application, down from 5% in 2001. 11 Because each participant has a unique background and set of circumstances, a more personal and individualized approach can be much more valuable. Simply delivering a computer model and calling it a managed retirement account solution may help performance to some degree, but may not meet the diverse needs of each investor as they set their long term goals for retirement. Instead of cookie cutter solutions, the industry must evolve toward a customized approach for all types of investors. A PARTICIPANT-CENTRIC APPROACH In August of 2006, President George W. Bush signed the Pension Protection Act (PPA). The PPA of 2006 encourages employers to take a more active role in their employees’ retirement plans by offering investment advice and automatic enrollment tools designed to help people save. Prior to the Act, many companies shied away from such direct involvement in their employees’ financial future, fearing lawsuits should their plan investments fail to perform adequately. The PPA opens the door to new methods. But what is needed is a fundamentally different approach—one that embraces distinct types of investors. 11 “The “one size fits all” approach to participant education has simply not been effective. ” Over the next several years, the advice vendors worked at improving the participant experience in order to drive up adoption rates. However, despite the significant financial and human capital investment, a relatively small number of plan participants—less than 20%—are using these services today. WHERE DID WE GO WRONG? Why have previous efforts by the industry failed to engage participants to any significant degree? The efforts have failed, in part, because they do not recognize individuality. The “one size fits all” approach to participant education has simply not been effective. In addition, despite the money and manpower invested in delivering retirement planning, education and advice either 12 RETIREMENT PLAN ADVISORS RISING STARS Rebecca Moore, “Participants Not Confident in Investing Abilities” (PlanSponsor, Nov. 28, 2006). SEPTEMBER 2007
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