4 steps 403(b) plan advisors should take in today’s rapidly evolving environment
30 years ago, advisors would help participants with plan enrollment and questions. Today, it's important to offer a range of services.
The role of advisors who help 403(b) plan participants has been shifting for over 20 years, due to regulatory changes, new technology and the range of responsibilities an advisor can have.
From the beginning, individual advisors have been helping participants in multi-vendor 403(b) plans with education, enrollment and obtaining distributions. Now, many plan sponsors have been shifting plan models by reducing investment providers, lowering costs and seeking to add new technologies that automate the enrollment process. Meanwhile, many plan consultants have raised concerns about the difficulty in tracking individual advisor activity, which makes it challenging to justify their expense.
Put simply, advisors can struggle to delineate the assistance they provide to clients.
In the world of websites, calculators and robo advice, many 403(b) plan sponsors have adopted the self-service model policies of 401(k) plans, leaving decisions, education and advice in the hands of participants who are ill-equipped to make many critical financial decisions independently.
Advisors need to adapt to the new age of information and technology. Below are four steps you can take to differentiate yourself in the 403(b) and 401(k) marketplaces:
1. State your fees clearly – Many recordkeeping systems allow for advice models and advisory fees that can be clearly seen by your clients, while mysterious commission-based products have been negatively covered by the media.
Advisors bring tremendous value to their clients and should be confident in their fee structures. Your clients may need to be educated as they move from commission products to fee-based products, but they appreciate clarity.
2. Offer service options – Let clients know the difference between point-in-time and continuous assistance. Many individuals need continuous help; however, most people fear the long-term commitment.
Offering flat-rate point-in-time assistance gives participants a chance to try your services and get to know you as an advisor, while assessing their long-term advice needs. These are some aspects to consider when charging a flat one-time rate:
- Enrollment
- Distribution plan
- Financial plan
- One-time asset allocation
3. Be a 403(b) expert – Many 403(b) plan sponsors are still adapting to the new regulatory environment. Some of them do not understand IRS audit triggers that can be avoided by proper communication to participants in the retirement plan. Examples include:
- Universal availability: The trigger is a low participation rate. The IRS is looking for a meaningful notice of eligibility sent to employees annually.
- Contribution limits: The trigger is a W-2 higher than IRS limits; some participants are eligible to contribute more through the allowed contribution catch-up options. The IRS likes to review the sequence of allowable contributions: Elective deferral limit 402(g), 15-year catch up (if allowed by the plan) and 50+ catch up.
- Distribution rules: The trigger is loan default. The IRS is looking for loan documentation and repayments.
- Other IRS topics: The IRS website lists issues a list of things that its field agents commonly review when auditing: Top ten issues for IRC403b and 457 plans
4. Be proactive – In this world of constantly evolving technology, individuals rarely feel able to ask the questions whose answers could assuage their fears. When the stock market is volatile, they need assurance that everything will be OK. But the human touch is often missing in today’s environment of computers and cell phones.
Both time and emotion are tied to the largest asset most people have – their retirement plan. If they are confident you’ll be available when changes need to be made, they will likely pay for that assistance. Newsletters, personal notes and phone calls can all have great value, while the human dialogue a professional advisor provides is often priceless.
Thirty years ago, advisors would help individuals with plan enrollment and understanding their product vehicle. To be meaningful today, advisors must provide a greater range of services. We are beginning to encounter the first generation in American society that has no pension plan to rely on, so they need to determine how to create a distribution plan.
Individuals are also divorcing and inheriting plan assets, so professional advisors must help with these issues. Today’s retirement needs have created a larger role for advisors and it’s incumbent upon them to take on that challenge. Troy Dryer is Vice President of Business Development at Investment Provider Xchange (IPX), a single-source end-to-end solution for providers in the 403(b) and 457(b) plan markets. He has more than 25 years of experience in the retirement plan industry, serving in various management, sales, client relationship management and product leadership roles. His firm recently published an educational paper to help 403(b) marketplace participants better understand the compliance marketplace.
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