Change is happening in the defined contribution retirement plan space. Yes, and water is wet—but it’s the pace of change and what it offers that’s causing anxiety for many, and excitement for some.
Sharp advisors can capitalize on the confusion to gain a competitive edge.
It’s something on which Nuveen is hyper-focused, and has identified three specific areas of industry angst advisors can utilize to their benefit.
Indeed, the venerable firm has heavily invested both time and resources to ensure its DCIO team and tools do just that—assist retirement plan professionals in identifying and acting on some of the biggest growth drivers going forward.
“The defined contribution landscape continues to shift from supplemental savings to sole retirement savings vehicle,” says Brendan McCarthy, National DCIO Sales Director with Chicago-based Nuveen. “It means the role of the retirement plan advisor is increasingly influential in shaping the retirement landscape. But it never came with a “how to” manual, which is why we’re here to help.”
McCarthy found time between travels to speak with 401(k) Specialist about what they’re seeing, the impact it’s having and—importantly—the potential advantages it presents.
Q: It’s somewhat of a leading question, but why should advisors (especially now) embrace rather than ignore change?
A: There’s A LOT going on in the industry that’s causing stress for advisors, but from it comes opportunity. And if those advisors are focused on what we see as the right areas, the potential opportunity could be tremendous for them.
Q: Let’s get right to it—what are the three areas you’ve identified?
A: The first is to expand their suite of services to include health savings accounts (HSA) and those types of offerings, the second is to become more efficient in their practices and the third is to focus (or refocus) on participant outcomes.
We are spending a lot of time out there right now helping advisors in these three areas.
Q: What’s driving change? Where’s it coming from?
A: There’s always the ongoing external presence of demographic and regulatory change. But at the same time, change is coming from within the industry with fee compression, heightened fiduciary concerns, increased competition and increased consolidation.
And making it even more complicated is the fact that plan sponsors are asking advisors to do more for less. That can create a lot of stress on an advisor’s practice, but we look to this as a pivotal time of opportunity for advisors.
For those who can be proactive and adapt their business model to meet these changes, we really see a chance for them to succeed and grow significantly in this market environment. Nuveen is absolutely committed to helping advisors navigate those challenges and capitalize on the opportunities that are present in the market today.
Q: So, let’s take each in turn. How, specifically, should advisors be expanding their services?
A: There’s a convergence of health, wealth and retirement going on, and retirement plan advisors should really be looking at expanding their offerings to include HSA plans, which share a lot of similarities to 401k plans, as well as financial wellness programs.
These are areas where plan sponsors need help, and as such, areas where advisors can really increase their value to that end-client.
Our research finds that today, 75 percent of advisors are either offering, or considering offering HSAs to their clients, so that’s the first.
The second part is improving the efficiency of their practice. They need to find a way to deliver more value for less cost, and we’re all faced with that burden right now.
Nuveen actually offers a service to help retirement advisors improve their P&L for their practices. It’s called the Plan Profit (k)alculator and it includes fee and service model benchmarking data. It’s a phenomenal tool that can help advisors really improve their practice efficiency.
The third part is focusing their business model on participant outcomes. The defined contribution industry has historically been input-based, but successful advisors going forward are going to convert that to an outcomes-oriented practice.
Q: That last one—participant outcomes—is, of course, something we’re all focused on, since it’s really the mission and reason for the industry’s existence. How are you helping advisors in that area?
A: We have a program for advisors that we call the “3Rs,” that focuses on the qualified default investment alternative (QDIA) and the specific steps advisors can take to help improve participant outcomes.
If you think of it now, the defined contribution plan is the sole retirement plan for most Americans. The QDIA has, in essence, become a pension plan for most of America’s workers. So, with the 3Rs is a process to 1) review, 2) retain/replace, and 3) re-enroll.
From a suitability standpoint, if you look at the demographics and needs of the plan, you should then review the suitability of the current target date’s glide path, performance, fees, etc.
If it is not an appropriate fit, then you should replace it. If you find that it is very suitable, then retain it. Either way, you can show the sponsor all the work you did to re-evaluate that QDIA, highlighting the value that you bring to the plan and its participants.
And then the third “R” is the re-enrollment. To really maximize participant outcomes and fix whatever misallocations that sometimes exist in these plans, you want to do that re-enrollment and get auto-features into play.
For more information or to access additional resources, visit nuveen.com.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
