Matt Damon “bought a zoo;” Bill Chetney bought a lodge, but the term doesn’t do it justice. In the vein of rustic luxury, floor to ceiling windows look across the fjord that borders Haines, Alaska. The towering mountain ranges just beyond feature summer snowcapped peaks and so many varieties of flora, fauna and furry animals that bald eagles are humorously (yet respectfully) referred to as Alaska pigeons.
The Chetney compound includes of a number of uber-comfortable cabins that allow visitors to feel well-rested in the midnight sun, and well-fed on fare such as salmon scrambled eggs, elk lasagna, and crab mac-and-cheese. Guests are routinely treated to bonfires on the beach and tours of local Haines kitsch—including “the first museum in the world” exclusively dedicated to hammers.
Sure, the lodge is a self-sustaining business with family serving as proprietors and staff, but for Chetney, founder of GRP Advisor Alliance, it also serves as his northern command.
The serial entrepreneur with an eccentric streak is well-known and well-liked throughout the retirement industry, with more than one high-profile industry exec emphasizing his importance in, and dedication to, the 401(k) space. Prior to starting GRPAA, a firm that seeks to achieve scale for the advisors who join its network, Chetney was president of LPL Financial Retirement Partners, a division of the broker-dealer giant that grew from its 2010 acquisition of another Chetney firm, National Retirement Partners (NRP).
For such a fun guy it’s surprising that his latest passion is anything but—financial wellness. It’s a nebulous term that’s difficult to define and “new entrants in the space dilute and pollute real programs with substandard offerings,” Chetney argues.
Raising the topic usually yields knowing nods and acknowledgements of its importance, but little else. Achieving widespread adoption among 401(k) plan participants, sponsors and yes, even advisors, seems a herculean task, which—knowing Chetney’s personality—is probably the reason he’s taken it on. And like so many past and present colleagues have come to expect, he has a plan.
“The key is to model financial wellness programs like health and wellness programs that we’ve now had for years,” he says. “We’ve shown that if we cut out the cheeseburgers, cigarettes and milkshakes, we have happier, healthier and more productive workers. The same goes for their financial health.”
Just like getting Americans to exercise and eat right, it will involve a whole lot of conversations, similar to what it took to get them to invest in the first place—something Chetney refers to as “back to the future.”
“When 401ks were this innovative concept back in the 1980s, it took a lot of conversations to get people to adopt,” he explains. “We’re not talking a lot as in thousands of conversations, but tens-of-thousands and even hundreds-of-thousands of conversations.”
There first had to be a conversation to get the employer of a small business understand and offer a 401(k) plan. Then, at the participant level, every single one had to be convinced of this crazy idea to take money out of their paycheck and give it to their employer, “which they probably believed was going in the boss’s drawer.” It’s one reason, Chetney argues, that it was important to have name like Fidelity Investments advocating for it, because no one knew what it was—or at least not enough to risk an investment.
“It took a lot of conversations to change behavior, but that’s where I think the industry did a great job. They talked to the planned sponsors and they talked to participants, and now we have companies, the country and the government all talking about why it’s so important. The government says I’ll give you a tax deduction, the planned sponsor says I’ll give you a match, and all of the macro features and incentives are in place to emphasize its importance.”
Institutionalizing financial wellness programs—though growing effectively in the mega plan space—will require the same grass roots efforts by advisors. Conversation after conversation, plan advisors are going to have to help business owners and finance departments alike understand how financial wellness programs can not only positively affect their bottom line, but employee loyalty and job satisfaction as well.
Like many 401(k) advisors and experts, Chetney is happy with the way the industry has handled the accumulation phase of saving and investing that have gotten so many participants to retirement. It’s the decumulation phase, or the through portion, that’s a bit more complicated, and has him understandably concerned.
“There are a lot of successful people out there that still have trouble with things like simple budgeting, because they were never taught. Accumulation and decumulation are cool words for you and me, but ‘save’ and ‘spend’ is what participants do. How do we get them to slow down to the speed of strategy and get them to focus on being the CFOs of their family? How do we get them to plan? For corporations, strategic planning is all these exotic things. For a family, strategic planning is basic budgeting, planning for college, planning to buy a house. [Financial education] didn’t happen in the home, it didn’t happen in school, but now there’s an opportunity for it to happen in the workplace.”
He believes that because the industry has done such a good job at the accumulation phase, participants who “do it right” will have $3 million or $4 million for retirement. The problem comes when these same participants still nonetheless make $70,000 annually.
“Bad things can happen when you hand someone a check of that size,” he laments. “It’s like when NFL players go broke so soon after retirement. They have no idea how to handle it, which leads to poor decisions, and is the reason 401(k) financial wellness is so critical. We’ve done well with achieving investment alpha for our clients, but now it’s time to achieve retirement alpha, which are simply better outcomes for later in life.”
All well and good, but how will they pay for it, or more specifically, how will a bottom-line watching CFO be convinced of its value?
It has to do with (what else) the current focus on low fees, but not in a way one would think.
“Efficient investing is in the spotlight with the lawsuits the industry is experiencing,” Chetney explains. “There’s a real question as to whether or not mutual funds are the most efficient way to invest retirement assets. You could traditionally buy retirement investments three different ways: separate accounts from insurance companies; mutual funds, and; collective investment trusts, all of which have been around for decades.”
Noting a “migration” that began in the 1980s, when he claims the overwhelming majority of retirement investments were in separate accounts, most had shifted to mutual funds by the 1990s. Through what were first A shares, and then R shares and lastly institutional shares, efficiencies have continued to grow.
“In certain instances, it’s now much more efficient to buy these same investment mandates in collective investment trusts,” he claims. “The challenge is that you have to have scale and purchasing power. But if you’re purchasing $1 billion of a particular mutual fund mandate directly through a CIT, you’re saving between 25 percent and 50 percent. So that’s the big hook, and that’s why we’ve crossed the $100 billion mark with the advisors with whom we work.”
The migration from separate accounts to mutual funds Chetney describes took anywhere from six to eight years to complete, but the next wave to collective investment trusts “is going to happen at 21st century speed.”
Noting that collective investment trusts can only be used by retirement plans, he’s more than happy to provide the following example:
When 401(k) plan sponsors at large corporations buy a bond mandate such as Blackrock Total Return, they don’t pay 41 basis points in a mutual fund, they pay true institutional pricing in a separate account or collective investment trust. While many smaller 401(k) plans can only invest $5 million, they can aggregate their assets through a CIT being part of a larger, say in a $1 billion pool, to achieve scale. That $1 billion in scale will result in 24 basis points in in fees that are “all in,” according to Chetney.
“So our customers are getting the same brain power, they’re just paying 40 percent less. The typical plan will pay even more than 41 basis points, again because of their lack of scale; it might by 70 basis points. Do the quick math—on a $100 million dollar plan, that means it cost them $700,000 annually to provide a 401(k) retirement benefit. That’s a significant expense, and that’s if the plan is efficiently run. Through scale and CITs, we’re going to take that fee down from $700,000 to $500,000, and that is the perfect time to approach HR and the CFO and say, ‘Hey, maybe you should take $30,000 of that savings and institute a financial wellness plan.’ It’s at that moment that they see the return and the financial sense of doing so.”
It’s a plan, but he’s under no illusions it will be easy, and he circles back to his “back to the future” theme and the importance of the conversation between 401(k) advisors and plan sponsors.
“This is going to be as hard as it was to get people to save in the first place, but the need is just as profound. Conversations don’t have to be literal, as in one on one, even though those are very powerful, but there are layers of conversations. Significant barriers existed in the early days of 401(k)s to get them to invest, and today the same barriers are being thrown out about financial wellness. Advisors are saying, ‘my clients aren’t asking for it.’ Plan sponsors are saying, ‘my employees don’t have time and they don’t read anything I send them anyway,’ and employees are saying, ‘I’m too busy.’ That’s all fine and good, but it still has to be done.”
Bringing together advisors, sharing ideas, leveraging scale to create innovative programs and investments are on the forefront of Chetney’s mind. His view of the retirement landscape sees continued consolidation opportunities to drive needed change.
(From 401(k) Specialist, Issue 3, 2016)
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.
