3 tips for tomorrow's retirement plan adviser

A successful plan specialist is a broad-based consultant, not just an investment consultant

Sep 21, 2014 @ 12:01 am

By Chip Castille

25 years ago, the main focus for retirement plan advisers was picking funds for a 401(k) in-vestment menu. While that seems increasingly anachronistic, one of the original selling points of the 401(k) was that it offered a broad range of choice to allow participants to “do it themselves.” Choice was considered synonymous with quantity, and quantity meant including dozens of funds.

We know now that handing a menu of funds to people not terribly interested in investing and asking them to create some sort of reasonable asset allocation was, at best, a bad idea. And at worst, it was potentially disastrous for their retirement health. Target date funds were created in part to solve the asset allocation problem for most participants and, judging by their ubiquitousness within DC plans, they have been reasonably successful.

Ironically, as investment menus got simpler, retirement plans became more complex. Instead of picking funds, the retirement plan adviser's focus is now on helping clients understand their needs and their choices, on how to navigate fiduciary responsibilities, and on using plan design to encourage better participant savings habits. In other words, today's successful retirement plan specialist is not as much an investment specialist as a broad-based consultant.


I don't think that any of this comes as news to today's successful retirement plan specialists. The question is: What about tomorrow's successful adviser?

Whatever specific shape the best practices of a new generation of retirement plan consultants takes, they will be created by advisers who can do the following three things:

1. Think like a participant. As professionals, we have varying criteria regarding what makes a successful plan. We may measure success by investment returns, expenses, participation rates or through employee satisfaction surveys. And there is no doubt that these are all important. But if you ask a participant how they would define success for their 401(k) plan, they will probably give you a very simple answer: It helps me retire on time.

Is there a better lens for examining the effectiveness of a defined-contribution plan? It forces a holistic view. If investment returns are strong, but contribution rates are low, that is a risk to the goal of retiring on time. If returns are strong and contribution rates are adequate, but loans and withdrawals are excessive, that's another risk. Successful advisers will be able to help their clients' internal team get out of their silos and see how all the components help or hinder participants in their goal of retiring on time.

2. Think outside the (style) box. The investment criteria we apply to DC fund selection are, generally speaking, intelligent and defensible. But to participants, it is like another language that has nothing to do with everyday life. Consider fixed income. The prospect of rising rates means that bond funds pegged to the Barclays U.S. Aggregate Index may lose value. Viewed through a narrow investment focus, as long as the fund tracks the index within an acceptable range, the fund is “successful.”

Participants, on the other hand, are likely to consider bond fund losses baffling and unsettling. For 30 years, they have seen robust returns and have come to consider bond funds safe and reliable. (A BlackRock Inc. survey found that many participants are not even aware that bond funds can lose money.) Thinking outside the style box means understanding why participants make certain decisions, such as safety or income. If a bond fund that sticks to the aggregate is not likely to deliver what they expect, then it may be time to rethink the fund and offer a selection that's more likely to meet their expectations.

3. Begin at the end. What if in an ideal world, instead of being told to save money for retirement, participants were told to buy “pension units.” Let's say they knew how much income each pension unit would provide and that it was easy for them to tally up their units and decide they were ready to retire. In addition to making retirement simpler, such an ideal arrangement would also clarify something important: that with each paycheck they have a choice between using their income today (which is called “spending”) and using their income tomorrow (which is called “saving”). But no matter when they spend it, the source is the same. It comes from the paycheck they get today.

I think on an intuitive level, participants understand this. But tomorrow's successful advisers will make the connection clear. They will help participants and plan sponsors understand that the goal is not simply amassing a savings balance, but understanding that balance in terms of the income it provides. They will also make it clear that while market returns are important, it really comes down to the choice they make between today and tomorrow with every paycheck.

Chip Castille is head of BlackRock Inc.'s U.S. Retirement Group.


What do you think?

View comments

Recommended for you

Upcoming Event

Jul 09


Boston Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Why advisers are pessimistic about the economy

Deputy editor Bob Hordt and senior research analyst Matt Sirinides discuss a recent InvestmentNews survey of advisers, most of whom see a recession ahead before the next presidential election.

Recommended Video

Keys to a successful deal

Latest news & opinion

Blackrock exposed data on 12,000 financial advisers

The data appeared in three spreadsheets, linked on one of the New York-based company's web pages dedicated to its iShares exchange-traded funds

Advisers throw cold water on FIRE movement

Millennials love it, advisers don't: Turns out, extreme early retirement is a suitable goal for almost nobody.

10 universities with the most billionaire alumni

These 10 American schools have the greatest number of alumni who are billionaires.

Top-performing ETFs of 2018

The markets took a beating last year, but these exchange-traded funds bucked the trend

Morningstar says investors rushed the exits in 2018

Net flows into mutual funds and ETFs were the lowest since the 2008 financial crisis, while money-market funds captured inflows.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print