SECURE Act might unlock work for advisers

Whether the SECURE Act poses a rich opportunity for financial advisers or an insidious threat was the topic of a panel at the InvestmentNews Retirement Income Summit.

About 28% of U.S. retirement assets were held in defined-contribution plans as of the third quarter of 2021, representing a quarter of the total retirement market and a tenth of Americans’ aggregate financial assets, according to an Investment Company Institute report released in February.

New retirees must figure out how to convert their savings to retirement income. Automatic contribution regimes in 401(k)s have helped millions of Americans save, but have insulated them from learning the mechanics of structuring retirement income and minimized the urgency working with their own financial advisers.

The SECURE Act first passed in 2019 and the House approved an expansion of the legislation in March. The overarching goal of the measure is to pull more working Americans into defined-contribution retirement plans and to better align their management of and access to the plans in sync with their life expectancy and career mobility. 

The SECURE Act might spell opportunities for advisers willing to ramp up services for new retirees with defined-contribution distributions to manage, if those advisers wait out the several years it will take for large plan administrators to apply the new SECURE rules, the panelists agreed. 

Advisers will have to be patient as the mechanics are smoothed out, especially as many workers have a basket of retirement accounts accumulated from various prior employers, said Bonnie Treichel, chief solutions officer with Endeavor Retirement. It will take time for the systems to produce the integrated retirement income projections that Congress apparently envisioned.

It's likely that workers retiring with substantial wealth accumulated through employer plans will represent a sort of interim category of client, the panelists agreed: less sophisticated and well-off than those who built their wealth independently or inherited it, but with greater need and corresponding means than the average employee.

And advisers face an unlikely competitor — the very employer-sponsored plans that the new retirees are leaving, said Michelle Richter, principal with consulting firm Fiduciary Insurance Services. 

“The environment is adapting to plan sponsors wanting to keep assets in plan longer,” Richter said. “It used to be that sponsors wanted individuals to roll out. That’s no longer their headspace.”

To reach this potential new category of clients, advisers will have to do a lot better than simply claiming they can best the workplace plan adviser, said panelist Jason Muench, a planner with UnitedOne. 

Competing on the basis of holistic longevity planning will likely be the winning pitch, especially as the next wave of retirees faces more complex decisions and has to figure out how to navigate more complex options. Newly retired workers may not have thought much about financial planning beyond the amount of basic income they’ll have; therein lies the opportunity for advisers.

The cost of long-term care, emergency savings and liquidity to cover major expenses like home repairs, and other topics might suddenly snap into focus for those accustomed to “set it and forget it” employer plans.

The challenge will be to ease clients into thinking about “not just their pot of money, but that they still need income beyond that number,” said Muench. “The pot might take care of their income now, but there are other things to think about down the road.”