The Young Guns

THE OFFICIAL MAGAZINE OF THE NATIONAL ASSOCIATION OF PLAN ADVISORS

NAPAnetthe magazine SUMMER 2018 • NAPA-NET.ORG Powered by the American Retirement Association THE NAPA NET THE MAGAZINE • SUMMER 2018 TOP ADVISORS UNDER 40 YOUNG GUNS NAPA’s 2018 Top Retirement Plan Advisors Under 40

Hitting the High Notes: 2018 NAPA 401(k) SUMMIT

Building a “Moat” with NQDC

Recommending Rollovers

Top Multi-Of ce DC Advisor Firms

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THE YOUNG GUNS by Judy Ward Meet NAPA’s 2018 Top Retirement Plan Advisors Under 40 — the “Young Guns” — and hear from six Young Guns on how to develop and hold onto younger advisors.

FEATURES

« BACK TO MUSIC CITY! « RECOMMENDING ROLLOVERS by John Ortman and Ted Godbout by Fred Reish and Joshua Waldbeser Bigger and better than ever, What advisors (still) should know the NAPA 401(k) Summit and do. returned to Nashville in April after a 2-year absence. 22 48 « BUILDING A MOAT « ‘MULTI’ FACETED by Judy Ward by Nevin E. Adams, JD That’s how nonquali ed plans can Introducing NAPA’s newest list: complement an advisor’s business. Top DC Advisor Multi-Of ce Firms. 44 52

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EDITOR-IN-CHIEF Nevin E. Adams, JD COPY EDITOR John Ortman [email protected] ART DIRECTOR / DESIGNER Ethan Duran [email protected] PRODUCTION MANAGER Steve Fox [email protected]

NAPA OFFICERS PRESIDENT Jeff Acheson PRESIDENT-ELECT Jania Stout VICE PRESIDENT Pat Wenzel COLUMNS IMMEDIATE PAST PRESIDENT Paul D’Aiutolo EXECUTIVE DIRECTOR 04 LETTER FROM THE EDITOR 16 INSIDE THE PLAN 57 INSIDE THE NUMBERS Brian H. Graff, Esq., APM by Nevin E. Adams, JD PARTICIPANT’S MIND by Nevin E. Adams, JD (Re)Solving the retirement by Warren Cormier Crisis ‘management’. NAPA Net the Magazine is published quarterly by the crisis. The roots of DC National Association of Plan Advisors, 4245 North Fairfax participants’ stress. 58 CASE(S) IN POINT Dr., Suite 750, Arlington, VA 22203. For subscription 06 INSIDE NAPA Our wrapup of information, advertising and customer service, please by Jeffery Acheson 18 INSIDE MARKETING recent litigation. contact NAPA at the above address or call 800-308- Innovate — or evaporate! by Rebecca Hourihan 6714, or [email protected]. Copyright 2018, The sky is falling! Will you 62 POLLING PLACES National Association of Plan Advisors. All rights reserved. 08 INSIDE THE BELTWAY run for cover, or will you by Nevin E. Adams, JD This magazine may not be reproduced in whole or in part by Brian H. Graff double down? Time for a digital without written permission of the publisher. Opinions Those state “laboratories disclosure default? expressed in bylined articles are those of the authors and of innovation” could be 20 INSIDE SOCIAL MEDIA do not necessarily re ect the ofcial policy of NAPA. creating monsters. by Spencer X Smith 64 REGULATORY REVIEW Want your employees to Highlights of recent activity Postmaster: Please send change-of-address notices for 10 INSIDE INVESTMENTS share your rm’s social at the federal agencies. NAPA Net the Magazine to NAPA, 4245 North Fairfax Dr., by Jerry Bramlett media posts? Suite 750, Arlington, VA 22203. The performance trap 68 INSIDE THE NEXT and the challenge of 54 INSIDE THE PLAN GENERATION Cover: Seita / Shutterstock.com SPONSOR’S MIND immunization. by Aaron Pottichen by Steff C. Chalk Are the Young Guns 12 TRENDS SETTING A new ‘10-10-90’ plan coming for your business? Shedding light on the for success. latest in industry and demographic trends. 56 INSIDE THE LAW by David N. Levine Our Baskin-Robbins industry.

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LETTER FROM THE EDITOR

(Re)Solving the etirement ʻCrisis’

everal weeks ago, I was in the “good old days” before the 401(k), have access to a retirement savings plan invited to participate in a at least within the private sector. And while at work, there was little doubt that a group of academics, think you can wrest an acknowledgement from government mandate could make a big tank representatives, advocacy those familiar with the data, almost no one difference. There was even less doubt Sgroups, and some from Capitol Hill for talks about how few of even those covered that a mandate would be a massive lift a conversation on retirement and the by those DB plans put in the time to get politically. And not much stomach in the future. The conversation touched on a their full pension. group for going down that path at the wide range of topics, everything from Ultimately, the group coalesced present. the key challenges to the current system, around four key recommendations: Expanded access to retirement the private sector’s role in addressing The signi cance of Social Security in accounts. While the group was hardly these problems, the individual’s role underpinning America’s retirement future of one mind in terms of what kind of (and responsibility) for securing their — and the critical need to shore up the retirement account(s) this should be, there own retirement, government’s role and nances of that system sooner rather than was a clear and energetic majority that the potential for current congressional later. The solution(s) here are simple; cut agreed with the premise that expanding proposals to have an impact. In view of the diversity of the group — the complexity of the topics — and the 90-minute window of time we had Expanding access is an, and perhaps the — to thrash things about — you might well expect that we didn’t get very far. And, integral component to ‘securing retirement’ at least in terms of new ideas, you’d be hard-pressed to say that we discussed for future generations.” anything that hadn’t come up somewhere, sometime, previously. But then, this was a group that — individually, anyway — has spent a lot of time thinking about bene ts (push back eligibility or means- access is an, and perhaps the — integral the issues. And there were some new and testing) or raise FICA taxes. The mix, of component to “securing retirement” for interesting perspectives. course, is anything but simple politically — future generations. but time isn’t in our favor on a solution. And maybe even this one. The Challenges The formation of a national As you are reading this, we are, or will It seems that you can never have a commission to study and recommend soon be, gathering in the nation’s capital discussion about the future of retirement solutions. I’ll put myself in the “what harm for our sixth annual NAPA DC Fly-In without spending time bemoaning the could it do,” particularly in that, to my Forum. We’ll be talking about some of the past, speci cally the move away from recollection, nothing like this has been same challenges noted above, and hearing de ned bene t plans, and this group attempted since the Carter administration. from lawmakers and regulators that could was no exception. There remains in We routinely chastise Americans for not impact and/or in uence those outcomes. many circles a pervasive sense that the taking the time to formulate a nancial If you’ve not been to this unique event de ned contribution system is inferior to plan — perhaps it’s time we undertook previously, I encourage you to put it on the de ned bene t approach — a sense that discipline for the system as a whole. your calendar for 2019. There’s nothing that seems driven not by what the latter Requirements matter — but don’t call quite like it. N actually produced in terms of bene ts, it a mandate. Since it’s been established but in terms of what it promised. Even that workers are much more likely to now, it seems that you have to remind save for retirement if they have access to folks that the “less than half” covered by a plan at work (12 times as likely), but NEVIN E. ADAMS, JD » Editor-in-Chief a workplace retirement plan was true even you’re concerned that not enough workers [email protected]

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NNTM_SUM18_04_LetterEditor.indd 4 6/18/18 10:44 AM

INSIDE NAPA

Innovate or Evaporate! BY JEFFERY ACHESON Staying relevant is critical to our futures, individually and collectively.

he S&P 500 was introduced roots within ASPPA, where relationships and Furthermore, one of our very valued in 1957 as a benchmark index credibility have been forged for more than 50 Firm Partners that exhibited at the Summit designed to track the value of years, and to our future under the American commented to me that the event is now the 500 largest companies in the Retirement Association “umbrella.” The ARA the most important conference on their TUnited States. Today, approximately 60, unites all voices across the retirement plan schedule each year by a wide margin. or just 12% of that original 500, are still service provider spectrum — now including Maintaining relevance is easier when you included in the index. Bankruptcies, mergers the perspective of plan sponsors through are considered the biggest and the best! and acquisitions certainly have taken their our new sister association, the Plan Sponsor When surveying the value propositions toll on the 440 that are no longer included. Council of America. and technology on display in the exhibit But for many, their fate was driven by We now have the depth, credibility hall, one couldn’t help but notice how the fact that they simply lost relevance, and history to justify a seat at the cutting-edge our industry has become. The credibility or positioning in the lives of the biggest and most in uential of tables. tools and resources available to advisors, American people or on the world stage. Unfortunately, getting a good table at plan sponsors and participants is simply The lesson to be learned? Innovate the best restaurants can be an expensive staggering. Innovation on display! or evaporate — the future is promised to commitment. So it is critical that we do Finally, growth is rooted in knowledge. To no one! With that lesson in mind, I have decided to start my term as NAPA President with a few observations and What must we do to maintain relevance, re ections that crossed my mind during and immediately following the recent, and credibility and positioning, and are we doing it?” I might add, spectacular NAPA 401(k) Summit in Nashville. The guiding question is: What must we do to maintain relevance, credibility and positioning, and are we a better job of supporting the NAPA that end, NAPA is committed to providing doing it? PAC — or we may nd upon arrival the our members: maître d’ has not treated us well with • Access to agnostic, unbiased Part of the Solution our table placement. Please remember, a education and thought leadership Brian Graff has often stated that as an contribution to the PAC is an investment • Exposure to best practices in association and as advisors we must be in your future! business model execution enthusiastically committed to being part of • Introductions to industry service the solution and not part of the problem Inclusion and Diversity providers when it comes to helping all Americans While many may not be aware of this, let As a mentor of mine once told me, achieve retirement security. We must be me assure you that a continuing agenda “The odds of success are highest when one perceived in such a manner by the legislative item for NAPA Leadership Council has both pride in the out t and con dence and regulatory bodies that affect our ability meetings is dialogue and action items in the leadership.” When it comes to to ful ll our mission. That enthusiastic focused on fostering inclusion, diversity NAPA, I have both — and I love our odds commitment was never more evident than and “Next Gen” leadership development. of staying very relevant in the important when gauging the off-the-charts energy level As you might imagine, we were quite story that is just beginning to unfold. N of the advisors at this year’s Summit. pleased to receive an email from a rst- time conference attendee saying the » Jeffery Acheson, CPFA, is NAPA’s 2018-2019 President. A Seat at the Table Summit was one of the most diverse Jeff is the founder of Advanced Strategies Group, LLC, We must acknowledge the age-old axiom industry conferences he had ever attended, which delivers a duciary-based business model focusing about the political waters we navigate: “If and observing that that couldn’t have been on high-income individuals, high-net-worth families, you don’t have a seat at the table, consider an accident. Let me assure you: a focus, successful companies, mid-size retirement plan sponsors yourself on the menu.” I think back to our yes; an accident, no! and charitable organizations.

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INSIDE THE BELTWAY

Under Covered Those laboratories of innovation could be creating monsters. BY BRIAN H. GRAFF

n the four decades since ERISA working on one. And while it’s early in the on contribution amounts and conveying was passed into law, millions of implementation, we can already see that needed information, such as employee Americans have entered and retired it’s a mess for employers, advisors, and lists and payroll data), and would provide from the workforce. Plan designs of participants alike. relief from the one-bad-apple rule Imany shapes and sizes have come into Proponents talk about the possibilities applicable to MEPs. being. De ned bene t plans dominated, that could emerge from 50 state Plan accounts would be portable, but then faded, after 401(k)s sprang out of an “laboratories” creating different solutions. 50% of the account balance would have obscure section of the Internal Revenue What they never seem to remember is that to be distributed in the form of a lifetime Code to become the way America saves. Dr. Frankenstein also had a laboratory — income vehicle. But despite all the change and and how did that turn out? And while no employer contributions innovation — the advent of target-date Solutions are emerging on a federal would be required in the minimum plan, funds, automatic enrollment, demographic level. Rep. Richard Neal (D-Mass.), the which would be a safe harbor plan with no shifts and workforce composition changes ranking Democrat on the House Ways & testing, the bill would also change ERISA’s — through good economic times and bad, one thing hasn’t changed: the percentage of American workers covered by a workplace retirement plan. Increasing access to coverage in a retirement Incredible as it may be, despite savings plan is, without question, the next big positive growth in nearly every single retirement plan metric — more and higher policy issue for our industry.” levels of participation, more diverse and, thanks to asset allocation strategies and advisor interventions, better rebalancing of investment portfolios, as well as the lift Means Committee, has introduced a game- coverage rules — not just for the minimum provided by sustained bull markets — the changing national retirement plan coverage plan, but for all existing plans. retirement preparations of nearly 4 out proposal called the Automatic Retirement What would that mean for workplace of 10 American workers in the private Plan Act (ARPA). Under Neal’s bill: retirement plans? For retirement savings? sector have been left sitting on the sidelines • All employers that have more than We’re in active conversations with Rep. simply because they don’t have access to a 10 employees and have been in Neal regarding the proposal — and the retirement savings plan at work. business for at least three years advisor-delegates to the NAPA DC Fly-In It’s been an issue for a long time, but would be required to provide an Forum will have a chance to hear from the tax reform debate has brought a whole automatic enrollment 401(k) plan. him directly on the issue. new focus to the issue. Increasing access • After a 5-year transition period, all The bottom line is there are those who to coverage in a retirement savings plan is, employees over age 21, including will, as they always do, fault the private without question, the next big policy issue part-time workers, would have to system. But the 401(k) isn’t the problem for our industry. be covered after no more than 3 — it’s that there are too many working This coverage gap was, in fact, the months of service (plans would no Americans without one. The reality is that rationale underlying the proliferation longer be subject to the current 70% when even moderate-income workers do of proposals at the state level to expand coverage rule). have access to a 401(k) plan, they are 12 retirement plan coverage in the private • Auto-enrollment would start at 6%, times more likely to save for retirement sector. Some, like California and Oregon, with annual auto-escalation of than they would be on their own in an IRA. have a mandate with a government-run 1% up to 10%. The challenge — our challenge — is default; others are looking into creating a The bill would allow for open MEPs, to expand the availability of retirement 401(k) multiple employer plan (MEP) for which under certain circumstances, savings in the private workforce. N employers in their state; and still others would relieve small employers (up to have created a marketplace for small 100 employees) of all duciary and » Brian H. Graff, Esq., APM, is the Executive Director of businesses to nd a plan provider or are administrative duties (other than passing NAPA and the CEO of the American Retirement Association.

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NNTM_SUM18_08_InsideBeltway.indd 8 6/18/18 10:45 AM

INSIDE INVESTMENTS

BY JERRY BRAMLETT

The Performance Trap and the Challenge of Immunization Immunization strategies could make a difference if the rest of the developed world has a Japan-like market experience at some point.

hould DC asset allocation programs (e.g., target-date • Maximize total wealth while maintaining an acceptable funds, managed accounts) be all about maximizing level of diversi cation, so as to minimize the impact of performance, or should the focus be on increasing the market volatility COM certainty (and protection) of a steady stream of income in • Maximize hitting a retirement income goal, while . Sretirement? This is the thin line that DC asset allocators must walk. immunizing future income streams against the uctuating cost of retirement income

Background Both approaches assume that market performance will SHUTTERSTOCK / Today, there are two distinct strategies behind individual DC be cyclical over time as the markets expand and contract in

portfolio design: response to the economy’s recession/expansion cycles. Where these FJMOURA

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NNTM_SUM18_10-11_InsideInvestments.indd 10 6/18/18 10:46 AM INSIDE INVESTMENTS

approaches differ is in their view of how DC investors should be positioned when Would DC investors near or at retirement they arrive at their retirement date. Most of the popular target-date funds be in the position to ‘wait it out’ if the that are focused on maximizing wealth ratchet down the equity exposure over U.S. stock market tanks?” time and, by the retirement date, have approximately 40% of the portfolio invested in equities with the balance in market tanks in a fashion similar to the approximately 80% in an in ation- xed income investments. This 40/60 Japanese scenario? protected bond portfolio that is mix often remains the recommended mix designed to support 25 years of throughout retirement. The Performance Trap retirement income. It could be argued that the wealth The challenge faced by many asset • Another approach (currently being accumulation approach works just ne allocation providers is that the market utilized by BlackRock via their CoRI if the market behaves like it has since the tends to focus on performance rather than Retirement Indices and deployed Great Depression ended in 1939: expansion on portfolio design. There are several through their iRetire planning followed by a recession which, in turn, is reasons for this: software) is to create a duration- followed by another expansion, and so on. • Asset allocators overwhelmingly matched bond portfolio that is tied However, what happens when the market deploy their strategies via a suite of to the estimated future cost (annuity goes down and stays down for an extended target-date funds. price) of retirement income. “The period of time? A case in point is Japan, • In general, “funds” are focused on CoRI Indexes are bond funds,” which saw its markets plunge in value in performance (e.g., 3, 5 and 10 years) researcher Wade Pfau wrote in 2015. late 1991 and early 1992. To this day, Japan versus income protection. “But they are not just any old bond has never fully recovered from that market • Investment performance is a funds. Rather, they are bond funds downturn. In fact, the Japanese stock relatively straightforward metric that whose prices are calibrated to move market’s 20-year high is only half its 1980s ts nicely in an Investment Policy in lock-step with the price of an peak. So much for the pattern of expansion/ Statement (IPS) and in Investment income annuity with a 2.5% COLA recession/expansion! Committee discussions. which will begin income at age 65.” Could the U.S. markets (and other • Portfolios that are designed to focus (“CoRI Index: A Tool to Lock-in developed countries) experience the same on and immunize future income Annuity Prices without Annuitizing,” type of market implosion as Japan’s streams may or may not look good Retirement Researcher, Wade Pfau, and stay down for an extended period in terms of their relative performance March 25, 2015) of time? James Bullard, President of the versus a fund focused on achieving Federal Reserve Bank of St. Louis, argued the highest level of (mostly recent) Conclusion in a paper written shortly after the Great return in a diversi ed portfolio. Given that immunization strategies are Recession that “the United States is closer not focused on achieving the highest to a Japanese-style outcome today than at Immunizing Future Streams performance numbers each and every year, any time in recent history.” (“Seven Faces of Retirement Income they do not t neatly into the “traditional” of Peril,” Federal Reserve Bank of St. Louis The focus of an immunization strategy is Investment Policy Statement. However, Review, September/October 2010) to optimize the positioning of investments immunization strategies can make a Predictions such as this are largely on the date the DC investor retires. difference, especially if the rest of the based on the assumption that the U.S. The following are two methods of developed world has a Japan-like market and other developed countries’ stock immunization in use today: experience at some point in the future. markets could nd themselves in the same • Starting at some period before Nonetheless, as long as plan sponsors “liquidity trap” that Japan did in the retirement (e.g., 20 years), an and advisors focus on superior “fund early ’90s — a situation in which nominal increasing amount of the investors performance” versus advanced “portfolio interest rates cannot be suf ciently assets are shifted from “risky” design,” the transition to an emphasis lowered to stimulate the economy because assets to — as is the case of the on creating — and most importantly, they are already close to zero. It is not Dimensional Fund Advisors Target protecting — retirement income will be a hard to imagine that, given the Fed’s Date Income Funds (TDIF) — a dif cult one. N loose monetary policy and where rates TIPs portfolio that is focused less are today, the U.S. market could very well on growing income and more on » Jerry Bramlett is the head of Ascensus’ TPA Solutions suffer the same fate as Japan. Would DC managing income risks. At the division. Before joining Ascensus in April 2018, he was investors near or at retirement be in the retirement date, an investor in a Managing Partner at Redstar Advisors and Managing position to “wait it out” if the U.S. stock DFA TDIF should expect to have Director at Sage Advisory Services.

SUMMER 2018 • NAPA-NET.ORG 11

NNTM_SUM18_10-11_InsideInvestments.indd 11 6/18/18 10:48 AM rens ʻetting’ Target-date funds top trillion-dollar mark, even as those fees (and that of mutual funds generally) continue to fall; HSA account counts seem to be leveling off; retirement con dence seems to be holding on to recent gains.

TDFs top trillion-dollar mark TARGET ‘RANGES’

ssets in target-date mutual funds of TDF assets at the end of 2017, up from $381 billion. To put that in context, A totaled roughly $1.11 trillion at 35% in 2014 and 24% in 2008. Morningstar explains that Vanguard’s the end of 2017, up from $880 billion at However, the increasing reliance 2017 net ows exceeded the sixth-largest year-end 2016 — but that’s not the most on indexed funds may be contributing provider’s total assets in TDFs. intriguing trend. to lower fees for TDFs. Morningstar American Funds’ $24.1 billion in According to Morningstar’s “2018 notes that fees for TDFs continued their 2017 estimated net ows came in a distant Target-Date Fund Landscape,” nearly 95% multiyear downward trend in 2017, and second, but still represented a strong year, of the $70 billion estimated net ows to that the average asset-weighted expense with the rm’s $88 billion TDF assets TDFs in 2017 went to target-date series ratio fell to 0.66% at the end of 2017, making it the fourth-largest provider. that invest predominantly — i.e., at least a notable decrease from 0.91% just ve In fact, the report notes that only 80% of assets — in index funds. years earlier. three other rms saw more than $1 billion It’s a trend that Morningstar says in estimated net ows to their target-date started in 2015 when passive target-date Flow Growth mutual funds in 2017: series’ net ows exceeded those for active While TDFs continue to see strong • TIAA Investments ($6.1 billion) ones. Not that the underlying reliance on growth each year, those ows are • BlackRock ($4.6 billion) index funds means that the TDFs are truly favoring a handful of rms. Not • State Street Global Advisors “passive” in that, as the report’s authors surprisingly, with a growing emphasis on ($2.7 billion) acknowledge, every target-date manager fees, Vanguard has been the big winner The report notes that TDFs now makes active decisions in building a glide of new investments in recent years, account for approximately one third of path and selecting asset classes. attracting $50.6 billion in estimated TIAA Investments’ mutual fund assets, and While active series still have more net in ows in 2017, bringing its total represent more than 40% of State Street assets, passive series accounted for 42% TDF assets to an industry-leading Global Advisors’ mutual fund assets.

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NNTM_SUM18_12-15_TrendsSetting.indd 12 6/18/18 12:27 PM The report notes that the “Big Three” Morningstar Categories ranged from The report acknowledges that the — Vanguard, Fidelity and T. Rowe Price 8.8% to 21.3% — and positive ows categories that have passed their target — have long been the dominant players in from investors. Regarding the latter, the retirement date can expect net outows, the TDF space, but their collective market estimated $70 billion of net ows that though it’s unclear whether these TDF share has edged down to 70% from 75% went to TDFs in 2017 edged the previous investors gradually withdraw assets for ve years ago. However, the ve largest high of $69 billion set in 2015 and retirement income or move assets in a providers — Vanguard (34%), Fidelity represented a notable increase from $59 lump sum to another strategy once they (20%), T. Rowe (15%), American Funds billion in 2016. The net ows have been reach retirement. (8%) and JP Morgan (4.8%) — held consistently strong, exceeding more than — NAPA Net staff nearly 83% of the market share at year- $40 billion each year since 2008. end 2017. By demographic — or, perhaps more precisely, by target date — the 2025 (Still) Going Strong category’s $13 billion in net ows in COM . Indeed, Morningstar notes that industry 2017 was the largest. On the other hand, assets amounted to only $158 billion at the comparatively modest $2 billion net the end of 2008. The growth is systemic ows in 2017 for the target-date 2060+ SHUTTERSTOCK

/ and organic; in 2017 the asset growth category comes from investors early in came from the combination of positive their careers (who typically earn and

ALPHASPIRI returns — the average return for TDF contribute less).

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NNTM_SUM18_12-15_TrendsSetting.indd 13 6/18/18 10:51 AM TRENDS SETTING

Has HSA enrollment stalled? ‘FLAT’ SIGNS?

hile both the number of, and enrollment in, health surveys — NCHS, KFF and Mercer — nd a 2-4 percentage point W savings accounts (HSAs) have grown signi cantly since increase in enrollment between 2015 and 2016. However, similar HSAs rst became available in 2004, data suggests that that to the lack of growth between 2016 and 2017, four of the surveys growth may be slowing. nd either no growth (Mercer and NCHS) or a one-percentage In 2017, enrollment estimates in HSA-eligible health plans point growth (AHIP and KFF) between 2014 and 2015. varied considerably — from 21.4 million to 33.7 policyholders and their dependents, according to a new report. But, according to the Signs of Growth? nonpartisan Employee Bene t Research Institute (EBRI), there is Despite all the surveys showing little or no recent growth in one consistency among the enrollment estimates — most sources HSA-eligible health plan enrollment, the EBRI/Greenwald & show that growth appears to have slowed in 2017, especially when Associates survey at least nds data that implies enrollment growth. looking at the market share of HSA-eligible health plan enrollment. Speci cally, a question related to the length of time someone had The report acknowledges that it can be challenging to determine been enrolled in their health plan nds that 19% had been enrolled how many people are enrolled in an HSA-eligible health plan and in their health plan less than one year, 28% had been enrolled how that number has been changing. Indeed, the report notes that, for 1-2 years, and 23% had been enrolled 3-4 years. And the EBRI the most part, there are just a handful of surveys used to determine report notes that if you look at the number of HSAs, rather than the number of people enrolled in an HSA-eligible health plan. enrollment in HSA-eligible health plans, there are signs of growth. EBRI explains that the surveys on enrollment count the number HSA ‘Accounts’ of people enrolled in an HSA-eligible health plan at a speci c point America’s Health Insurance Plans (AHIP), which, according to in time, and that while the EBRI/Greenwald & Associates survey EBRI, generally reports the lowest estimate, has not released 2017 nds that 19% of enrollees are new (implying there is enrollment estimates yet. AHIP, EBRI/Greenwald & Associates and National growth), no survey directly measures disenrollment from HSA-eligible Center for Health Statistics (NCHS) estimates are in the low-20- health plans that may be offsetting new enrollment. Unpublished million range, while Kaiser Family Foundation (KFF) and Mercer EBRI tabulations of enrollment and disenrollment data in the Truven estimates are in the low-30-million range. AHIP, EBRI/Greenwald Health Analytics’ MarketScan Commercial Claims and Encounters & Associates, and NCHS cover the entire privately insured market, Database indicate that 10% of persons with individual coverage and whereas KFF and Mercer cover only employment-based health 8% of persons with family coverage disenrolled from their HSA- plans. Hence, according to the report, the AHIP, EBRI/Greenwald eligible health plan between 2013 and 2014. & Associates, and NCHS estimates should be larger than KFF and Mercer — however, data shows just the opposite. Account/Plan Disconnect? The EBRI report notes that these surveys are consistent in Indeed, looking at data from the EBRI HSA Database, the report nding that there was very little growth in HSA-eligible health plan notes a potentially large number of HSAs that may no longer be enrollment from 2014 to 2017. EBRI/Greenwald & Associates and currently associated with an HSA-eligible health plan. At the end KFF nd that enrollment in HSA-eligible health plans was steady of 2016, the EBRI HSA Database contained 2 million HSAs that from 2016 to 2017, while Mercer and NCHS nd that enrollment did not receive any contributions in 2016, accounting for 36% increased by 1 percentage point between 2016 and 2017. Three of the accounts in the database. This lack of contributions may, according to EBRI, indicate that the accounts were no longer eligible for contributions because their account owner was no longer enrolled in an HSA-eligible health plan. In fact, EBRI notes that the percentage of accounts not receiving any contributions appears to be trending up, which they say would imply that simply looking at the number of accounts is not a good proxy to measure trends in HSA-eligible health plan enrollment. While 2017 is a year with consistent low growth across the surveys, EBRI notes that there is at least one year in most of the surveys that shows low, no, and negative growth followed by a rather COM

large jump in enrollment, and hence it is possible that such statistical . anomalies are driving what appears to be low growth in 2017. Ultimately, the report concludes that “more years and more

research into this question are necessary to better understand SHUTTERSTOCK trends in HSA-eligible health plan enrollment.” /

— NAPA Net staff ZPHOTO

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NNTM_SUM18_12-15_TrendsSetting.indd 14 6/18/18 10:51 AM TRENDS SETTING

A healthy ‘bump’ for retirement con dence? CONFIDENCE BUILDERS?

mericans continue to feel better con dent. What’s less clear is whether they con dence in being able to afford medical A about their retirement prospects, are con dent because they are healthy, or and long-term care expenses in retirement especially if they are healthy, have a healthy because they are con dent (or have is down signi cantly. This comes at a de ned contribution plan — or are a reason to be). time when the RCS found that more than already retired! Uncertainty about nancial needs 4 in 10 retirees report that their health This according to the 28th annual in retirement certainly takes a toll on care expenses in retirement are higher Retirement Con dence Survey from the con dence, and concerns about future than they expected, and another one in non-partisan Employee Bene t Research health care costs de nitely loom large. four say long-term care costs have been Institute (EBRI). The survey purports That said, only 19% of workers and higher. Not helping matters is a decline in to be “the longest-running survey of 39% of retirees have tried to calculate their con dence that Social Security and its kind,” measuring both worker and how much money they would need to Medicare will continue to provide bene ts retiree con dence about their retirement cover health care costs in retirement. equal to what retirees receive today. Still, con dence and other related aspects. In Not surprisingly, those with a retirement a full three-quarters of retirees are very or the 2018 version (taken prior to the recent plan were noticeably more likely to have somewhat con dent they will have enough waves of market volatility, it should be done so. (EBRI has previously estimated money for retirement — and that’s as high noted), the RCS found that the share of that some couples could need as much as as it has been going all the way back to workers who feel very con dent in their $370,000 to cover health care costs 1994 (except for last year, when 79% were ability to live comfortably in retirement in retirement.) that con dent). was about even with last year (17%, Interestingly enough, retirees who Surprisingly, only about half (48%) of compared with 18% in 2017), but another made this calculation are less likely to have retirees said that a workplace retirement plan 47% are somewhat con dent, leaving experienced higher-than-expected health has been a source of income in retirement. nearly two-thirds of survey respondents costs and more likely to say costs are as On the other hand, 60% of those who are very or somewhat con dent. expected (although arguably, having made zero to ve years into retirement say it has. an attempt to estimate the costs would Meanwhile more than 4 in 10 retirees (44%) Con dence Connection? provide a basis for those expectations). with a DC plan rolled at least some of that The RCS, conducted by EBRI and Worthy of note for employers and money into an IRA. In total, 7 in 10 took at Greenwald Associates, this year found a advisors: 7 in 10 employed workers and 6 least some of their money out of the plan. connection between the impact health and in 10 employed retirees say that workplace As in previous years, the report nds health care expenses have on retirement education on health care planning for some issues with retirement assumptions, con dence and nancial well-being: retirement would be helpful. notably that workers expect to retire later 6 in 10 workers who are con dent in than retirees actually do, and that two COM . retirement overall are in excellent or Declining Findings out of three expect work for pay to be good health. As for those not con dent Retirees, though still more con dent than either a major or minor source of income about retirement, only 28% report such workers about retirement prospects (hey, in retirement, although only one in four SHUTTERSTOCK good health. The same is true for retirees: they’re already living it, right?), this year retirees say working is a source of income 1 / 46% of con dent retirees are in good registered a decline in overall con dence, for them. N

INTROWIZ health compared to just 14% who are not likely because (as noted above) their — Nevin E. Adams, JD

SUMMER 2018 • NAPA-NET.ORG 15

NNTM_SUM18_12-15_TrendsSetting.indd 15 6/18/18 10:52 AM INSIDE THE PLAN PARTICIPANT’S MIND

The Roots of DC Participants’ Stress BY WARREN CORMIER Many of the factors driving nancial stress can be affected in large part by the plan sponsor, the recordkeeper and the advisor.

related to the so-called “sandwich generation,” i.e., people who are supporting their parents, grandparents or adult siblings in addition to their own children.

Predicting Participants’ Financial Stress Levels The question used to measure nancial stress was: “How would you describe the amount of stress you feel when you think about your nancial situation?” Twenty-three factors thought to affect stress were used in this analysis. The model overall was highly predictive of stress, explaining a signi cant proportion of the differences in reported stress among participants.

Factors That Reduce Financial Stress The strongest factor determining stress was the sense of feeling comfortable about planning for retirement. That is, the more comfortable one is with retirement planning, the less stress he or she feels. veryone in the DC industry nancial stress can affect relational stress, We have seen in other models that knows that productivity and work stress can affect health stress, and so nancial planning increases one’s sense of stress are frequently discussed on. Plan sponsors, recordkeepers and plan control over their nancial life, and greater topics. In fact, it is one of advisors all can have a direct or indirect control reduces stress. This is clearly a Ethe strongest rationales for offering effect on the amount of stress related to controllable form of stress that can be nancial wellness programs. The logic is nances that participants are experiencing. addressed by advisors’ direct contact with that workers who are feeling stress are However, their direct impact on the participants or indirectly through nancial distracted, less productive and less healthy. other forms of stress is limited, with the wellness programs. Furthermore, the degree And nancial issues are a major exception of work-related stress. of control participants feel they have upon source of participants’ stress. The National To understand the dynamics of how their nances, and life in general, directly Institute of Health identi es four primary nancial stress is created, the National impacts their sense of well-being overall and sources of stress: Association of Retirement Plan Participants speci cally in their nancial lives. In fact, COM

• Finances performed a statistical analysis designed to a sense of control is the key element that . • Health isolate the factors that increase or decrease participants use to describe nancial wellness. • Relationships nancial stress. Speci cally, multivariate As we’ve seen frequently, nancial

• Work analyses (i.e., regression models) were used wellness is not a demographic. Rather, it is SHUTTERSTOCK These four sources can be interrelated, to identify the factors that drive levels a psychographic that describes a person’s / with each category affecting the level of of nancial stress felt by participants. sense of well-being when they think about

stress in the other categories. For example, Interestingly, the models included factors their nances. For example, two people LIGHTSPRING

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NNTM_SUM18_16-17_InsidePlanPartMind.indd 16 6/18/18 10:53 AM INSIDE THE PLAN PARTICIPANT’S MIND

with the same annual income can have Having to care for Factors That Increase vastly different levels of nancial wellness. Employer Trust Similarly, two people with the same income family members Interestingly, the strongest factor replacement ratio can also have very driving greater employer trust was the different levels of nancial wellness and can have the effect participant’s total amount of debt. That different lifestyles in retirement. of reducing one’s is, respondents with higher levels of debt Participants often described nancial trusted employers more. The direction of wellness as the freedom to make decisions sense of control.” causality is not known, but it may be that that don’t necessarily maximize their participants who are more trusting in their income, but rather maximize their sense of employer feel more con dent in taking on mission and signi cance. They often also more debt. Other factors increasing trust described nancial wellness as the freedom are listed below. Importantly, all these from the slightest negative event (e.g., a drivers are in the control of the employer fender-bender or car breakdown) putting through nancial wellness programs, their nancial life into deep crisis. stress due to a greater economic including effective education and tools Other variables that reduce stress burden, but having to care for family for participants: were also related to control (i.e., less members can have the effect of • Feeling comfortable with nancial uncertainty) over the future, including: reducing one’s sense of control.) planning for retirement • 401(k) account balance. (The • Having to tap into savings to • Knowing the amount of the higher the balance, the lower the support adults. (Related to the management fees for their accounts uncertainty about being able to previous factor, having to actually • Calling the recordkeeper’s retire, a major concern among reduce one’s savings balance to representatives more frequently participants. However, expressing support another adult further • Feeling more knowledgeable about the balance in terms of the monthly reduces sense of control.) nancial matters income it will produce in retirement • Having to delay retirement to • Knowing the amount of savings is a more comforting way to show support adults. (If the ultimate required for retirement the data.) result is having to delay retirement • Feeling comfortable managing • Being comfortable managing to support other adults, stress levels money money. (The greater the level of increase signi cantly.) understanding and comfort with Factors That Reduce money, the greater sense of control Factors That Do Not Affect Employer Trust over their nancial life.) Financial Stress Lower levels of employer trust were • Trust in the employer to do the right Sometimes it is just as interesting to look associated with: thing. (A sense that you can rely at the factors that do not drive nancial • higher levels of nancial stress (i.e., upon your employer to do the right stress. Most notably, the two factors that nancial stress can have multiple thing and to be forthright is a great were not associated with higher or lower levels of negative impact, including comfort to participants.) nancial stress were: reducing trust in the employer); and • Knowing the amount of fees • Years of education • being older (i.e., older employees associated with one’s retirement • Household income tend to have lower trust in their account. (Having more information employer). about what something costs Predicting Trust in the Employer The analysis showed that overall, many of generally reduces stress.) Since trust in the employer is a signi cant the factors driving nancial stress can be driver of stress, an analysis was performed affected in large part by the plan sponsor, Factors That Increase Financial Stress to identify the factors that affect trust the recordkeeper and, most importantly, The analysis also identi ed the largest in the employer. The question used to the advisor. Clearly, the advisor can play factors in increasing stress. Here is where measure employer trust was: “How much a substantial role in improving the level the analysis showed the impact of having of the time do you think you can trust of nancial wellness. This is an important to support adult family members: your employer to do what is right?” potential value-add of advisors that should • The participant’s amount of total The model overall was also highly not be overlooked. N debt. (Not surprisingly, a greater debt effective in determining the factors driving burden relative to income signi cantly employer trust, explaining a signi cant » Warren Cormier is the Executive Director of the DCIIA increases nancial stress.) proportion of the differences in reported Retirement Research Center and President and CEO of • The number of family members trust among participants. Financial stress Boston Research Technologies. He is the author of the DCP for whom they provide nancial was included in this model as a potential suite of satisfaction and loyalty studies, and cofounded the support. (Not only does this create factor in employer trust. Rand Behavioral Finance Forum with Dr. Shlomo Bernartzi.

SUMMER 2018 • NAPA-NET.ORG 17

NNTM_SUM18_16-17_InsidePlanPartMind.indd 17 6/18/18 10:53 AM INSIDE MARKETING

The Sky is Falling! BY REBECCA HOURIHAN Will you run for cover, or will you double down?

awsuits to the left, regulations So here’s the question: Will you run Someone is sitting in the shade today to the right, tax reform straight for cover, or will you double down? because someone planted a tree a long ahead — these days it seems like time ago. no matter which way you look, Run for Cover? The sooner you start promoting Lthe retirement plan industry is in trouble. Do you remember when the 408(b)(2) rules and advertising your retirement plan The sky is falling; panic is in the air. Throw went into effect and some advisors backed expertise, the better. It’s like planting a your hands up; get out while you still can. away from their retirement plan businesses, seed. It’s going to take time to develop Wait, where have we seen all this guring it was better to wait until talk of fee your professional reputation. As it before? That’s right — the Pension disclosure had cooled down? If you were one grows, more and more people will come Protection Act of 2006, Tussey v. ABB, the of them, how’s your business doing today? to learn your experience and eventually COM nancial crisis, fee disclosure and all the Do you have more clients, or fewer, or about seek you out to help them with their . news about the DOL’s conict-of-interest the same number? If you could do it all over retirement plan. rule. Change can be cause for concern, but again, would you make the same decision? No matter how great the talent or SHUTTERSTOCK

it doesn’t have to be a reason to fear. Our Following are two quotes by Warren efforts, some things just take time. You / industry has weathered sea changes like this Buffet that resonate strongly with the state can’t produce a baby in one month by

in the past, and now should be no different. of marketing today. getting nine women pregnant. VASIN LEE

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Speaking of patience and effort: You need to There’s no shortcut to success here. FOCUS ON THE Marketing takes time, organization and recognize that fear persistence, and no matter how much THINGS YOU work you put into it, you won’t see and hesitation can results overnight. spell opportunity CAN IMPACT Your centers of in uence need to develop trust in your services before they’ll for you.” Here are two marketing ideas that introduce you to their valuable clients. Your prospects will want to know about have nothing to do with lawsuits, your experience and the processes you’ll regulations or tax reform: use to help them with their duciary responsibilities and participant engagement • Retirement Readiness. It’s common programs. Retirement plan committees will knowledge that many Americans seek you out to nd out more about you, an immediate way to stand out. Update are generally underprepared for reviewing your website, your social media your website, your biographies and and the web at large to nd out what social media pro les, your brochures, retirement. Focus on a topic you are people are saying about you. It can be your presentations, your case studies — passionate about that helps people intimidating, but it’s not impossible — it every single item you share with clients, just takes time. prospects or centers of in uence should achieve the one thing a retirement provide a world-class representation plan is supposed to help them with: of what it’s like to work with you and Double Down? a happy and nancially secure If you’re serious about making it in this your rm. You’re an expert in the eld business, you need to recognize that fear of retirement plans, and your marketing retirement. You can get in front of and hesitation can spell opportunity for needs to re ect that. the conversation through nancial you. When your competitors are afraid to wellness initiatives and auto plan make a move, that’s your chance to step What’s Next? in! Here are some things you can do: We can’t know for sure right now. The design solutions. • Seek out a retirement plan advisor most likely outcome is a wave of lawsuits • Auto Features. Surprisingly, despite who’s on the fence about what to do that will change how plan duciaries with their book of business — and document and adhere to their processes. how much the retirement plan buy it from them! We’ll see advisors enter and leave the industry talks about auto features, • Speak with CPAs and accountants industry. Odds are good that the newly only a little over half of plans who used to sell insurance-based released SEC duciary proposal will products and negotiate new deals come into play. Tax reform has gone into actually use them. Make sure you with them. effect — and is having a huge impact on talk about how and why to implement • Look for local plans with corrective employers and employees. The bottom distributions, then team up with a line: Things are going to change, and them. Create case studies, with TPA and try approaching those plan the industry will have to adapt to those client examples, demonstrating their sponsors with conversations about changes. impact on participant outcomes. plan design. While there are some major changes • Know any business owners with on the horizon, the sky isn’t falling. high incomes? You can bet they have Embrace the changes, market through been reading about the Tax Cuts and them, and remember: Someone is sitting Jobs Act and whether they have QBI in the shade today because someone opportunities. Start a conversation planted a tree a long time ago. Take the with them on savings strategies such opportunity to plant the rst seed today! as HSAs, new compatibility, cash Thanks for reading, and happy balance plans and others. marketing! N Now take a look at your current marketing materials. Are they awesome? » Rebecca Hourihan, AIF, PPC, is the founder and CMO If so, good job! If not, you’ve got some of 401(k) Marketing, which she founded to assist quali ed work ahead of you. Competition is experts operate a professional business with professional erce, and high-quality, professional- marketing materials and ongoing awareness campaigns. looking marketing materials can offer

SUMMER 2018 • NAPA-NET.ORG 19

NNTM_SUM18_18-19_InsideMarketing.indd 19 6/18/18 10:54 AM INSIDE SOCIAL MEDIA

BY SPENCER X. SMITH Want Your Employees to Share Your Company’s Social Media Posts?

Then consider inkedIn is often credited with If you already have an amazing advocating for coining the term “employee company culture, this strategy might work your employees advocacy” as the active because your employees want to brag rst before you promotion of your company by about the awesome company they work Lthe people who work for it. for. But for those companies looking to ask them to Sounds easy enough… just tell your earn the respect of the tremendous social COM advocate for you. employees that they need to share good media force they have within their own . news about your company or its products walls every day, they’re going to have to or services, and you’re done, right? If that work for it. SHUTTERSTOCK

is your strategy, then say hello to limited There is an old adage: “We love our / engagement and mundane, template- parents because they loved us rst.” This

sounding social media posts from your staff. is both straightforward and inherent. But NOPPORN

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NNTM_SUM18_20-21_InsideSocialMedia.indd 20 6/18/18 10:59 AM INSIDE SOCIAL MEDIA

taking this lesson and applying it to your centric and doesn’t blur business/personal The long-term success of any company business is also the best way to make lines like Facebook. Then create a content depends on its workforce. Your employees employee advocacy actually work. If you calendar that includes an appropriate are the one component that makes try to implement an employee advocacy amount of posts highlighting someone or your company unique. Recognize each program before you’ve shown your something else three-quarters of the time. employee’s impact on your entire employee employees that you truly care about them, Use the other one-quarter to say something advocacy program. And it shouldn’t be it might not be very well received. You’re about yourself or your business. just the top performers — each person essentially asking your employees to love in your company contributes to a larger you before you love them. Get to Know Your Employees cause. Congratulate and recognize their Let’s think about a service-based Spend time getting to know your contributions regardless of size. organization that’s been around for a employees. Have a conversation with them And nally, let your team have a say while. I bet you’ve seen one of those focused around what it is they do outside in choosing material that truly resonates plaques hanging on the wall of a of work or what they are passionate about with their careers and personal lives. By McDonald’s — usually over the counter, in their free time. Maybe they volunteer at doing so, you make them part of the entire but still visible enough for customers to notice. McDonald’s has been naming an “Employee of the Month” long before social media existed. They do this to show appreciation to an employee that Today every company in the world has an has recently gone above and beyond in their position. This strategy has merit, unlimited amount of space on their digital and but it also has drawbacks, such as limited reach and a nite amount of real social media platforms.” estate on the wall where they can display this act of kindness. Fast-forward to 2018: every company in the world has an unlimited amount of space on their digital and social media the Humane Society or take care of elderly curation process, and this will result in platforms. Businesses have the opportunity people on weekends. It’s important to both much more authentic engagement. to create an endless amount of content hear and understand their stories. If you Have you instituted an employee focused on their employees and their lives want them to tell yours, tell theirs rst. advocacy program at your company yet, inside and outside of the of ce — what whether in name or in practice? Are you they’re passionate about, their hobbies, Create Content suf ciently shining the spotlight on your their goals. This is the kind of authentic Once you have the information about an employees before you’re asking them to engagement and appreciation that will employee that you’d like to share, choose publicize you? N make an impact in their minds and, more the medium that best suits their personality importantly, their hearts. These are the and story — video, image(s), simple text » Spencer X Smith is the founder of spencerXsmith.com, types of posts that make employees want or anything else that conveys the message an instructor at the University of Wisconsin, and an Adjunct to share things about their employer, effectively. Faculty member at Rutgers University. He’s a former 401(k) because they feel appreciated and cared for wholesaler, and now teaches nancial services professionals by the boss. De ne Success how to use social media for business development. He may Are you doing this for your Employee advocacy can drastically be reached at spencerXsmith.com. employees? If not, consider advocating for extend your reach and awareness. Since your employees rst before you ask them employee “shares” are regarded as more to advocate for you. Give your employees genuine because of their very personal a reason to care. approach, more people are going to What should your employee advocacy engage with and participate in the strategy look like? content. This expanded network could eventually mean bigger sales. Today your Outline an Approach brand’s online visibility has never been Pick the platform you’ll focus on rst. I more crucial, and your social media recommend LinkedIn since it’s business- presence is a huge factor in that.

SUMMER 2018 • NAPA-NET.ORG 21

NNTM_SUM18_20-21_InsideSocialMedia.indd 21 6/18/18 10:59 AM NNTM_SUM18_22-33_Feature01_Summit.indd 22 PHOTO BYDWAYNE C. BASS FEATURE CITY! MUSIC TO BACK Nashville in April after a2-year absence. Here are thehighlights. Bigger andbetter thanever, theNAPA 401(k) Summitreturned to 6/18/18 11:00AM

XXX / SHUTTERSTOCK.COM BY JOHN ORTMAN AND TED GODBOUT

NNTM_SUM18_22-33_Feature01_Summit.indd 23 6/18/18 11:00 AM he nearly 2,000 attendees at the 2018 NAPA 401(k) Summit in Nashville were greeted by torrential rain the day before, followed by unseasonably chilly weather and even a few snow urries. At a three- day event that included two nights of festivities on Nashville’s Broadway Street, did that slow anyone down? Are you kidding? On the following pages you’ll nd our annual wrapup of the NAPA 401(k) Summit. This year’s Summit featured ve general sessions, 29 workshop sessions (including peer-to-peer roundtable discussions for advisors, recordkeepers and home ofce staff), 16 sponsored workshops, and a two-night NAPA After Dark program that rocked Music City. There was also a CPFA credential exam afterward, as well as two “cram sessions” for the exam. Also, it snowed.

GRAFF ANNOUNCES E-DELIVERY INITIATIVE TNAPA Executive Director (and American COM Retirement Association CEO) Brian Graff . unveiled plans to address the expensive and outdated ERISA requirement to

disclose information to 401(k) participants SHUTTERSTOCK /

in paper form. XXX

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NNTM_SUM18_22-33_Feature01_Summit.indd 24 6/18/18 11:01 AM account balance, that equates to 2.5% in NAPA Executive Director/ lost retirement savings over a participant’s ARA CEO Brian Graff working life. “By having electronic delivery unveiled ARA’s e-delivery initiative at the Summit’s be the default for 401(k) disclosures, we opening session (left). will save the 401(k) system hundreds of millions — meaning more retirement savings for working Americans,” he said. The study was subsequently shared with members of Congress. Graff noted that the federal Centers “Today the American Retirement Association is starting a for Medicare and Medicaid Services, the campaign to nally get the 401(k) disclosure rules changed so that Social Security Administration and the electronic delivery can be the default,” Graff announced at the retirement plan for federal employees Summit’s opening general session. all utilize e-delivery as the default for The ARA’s proposal would essentially ip the current communicating important information. orientation of the Department of Labor’s ERISA regulations, “If it’s good enough for Medicare and which emphasize providing paper disclosures — including the Medicaid and the Social Security system, Summary Plan Description (SPD) and Summary Annual Report it should be good enough for the 401(k) (SAR) — to plan participants but includes a safe harbor permitting system,” Graff declared. electronic delivery to certain types of participants with online Despite the common-sense ideas access. To utilize the safe harbor, however, plan sponsors using embodied in the ARA proposal, retirement e-delivery must solicit participants’ consent, track their responses, professionals should expect opposition store their e-mail addresses and monitor delivery of the disclosures to it, Graff added. “This should be a slam — an administrative headache that constrains the use of e-delivery. dunk, right?” he asked. “Well, there will be The ARA would make e-delivery the default method and opposition. AARP will raise concerns and retain the paper option. “Anyone who wants to get paper will have there will be opposition from — you guessed the option to do so,” Graff explained. it — the paper industry. They already have a

) NAPA and the ARA recently partnered with the Investment website protecting their interests — check it 3 ( Company Institute to examine the economic impact of the current out at paperoptions.org.”

SIMON 401(k) disclosure regime, Graff noted. The just-completed study The e-delivery default idea does . H “shows that approximately $500 million a year is unnecessarily enjoy support in Congress. Late last year,

MARTIN spent on these disclosures,” he said. Based on the average 401(k) bipartisan legislation that would allow for

SUMMER 2018 • NAPA-NET.ORG 25

NNTM_SUM18_22-33_Feature01_Summit.indd 25 6/18/18 11:01 AM e-delivery of pension and retirement plan Wilson listed the top four things that keep her and her information was introduced in the U.S. cybersecurity peers up at night. House of Representatives by Rep. Jared • North Korea. The North Korean government is funding the Polis (D-CO) and Rep. Phil Roe (R-TN), development of its nuclear weapons program by hacking along with 26 cosponsors. The “Receiving into banks and stealing millions of dollars, most notably the Electronic Statements to Improve Retiree theft of $100 million from the Bank of Bangladesh. Earnings (RETIRE) Act” (H.R. 4610) • Organized Cybercrime. What Wilson termed “cyber crime would allow plan sponsors to auto-enroll syndicates” are aggressively targeting the nancial sector, participants in an e-delivery option for Wilson noted. plan communications, while providing an • Fraud. Financial institutions are facing a new strain of fraud, opt-out option for employees who prefer aided by cyber means, that “is much worse than just two years to receive paper documents. ago,” according to Wilson. • New Malware. “All 40 major U.S. banks are suffering from WHAT KEEPS A HEAD “Marcher,” a new form of malware impacting Android OF CYBERSECURITY devices,” Wilson explained. The program pretends to be a UP AT NIGHT? form of the popular Solitaire game for smartphones. When The nancial sector spent $90 billion on a user uses a mobile banking app on their smartphone, cybersecurity last year. What keeps the however, Marcher creates an overlay that allows hackers technologists in charge of nancial rms’ to capture their username and password — and thus access cybersecurity efforts up at night? to their accounts. “Marcher can be purchased on the ‘Dark Rachel Wilson, head of cybersecurity Rachel Wilson, Head Web’ for $60,” according to Wilson. for Morgan Stanley’s Wealth Management of Cybersecurity for Wealth Management unit, shared the major concerns and Technology at Morgan ‘The Weakest Link’ provided some cybersecurity advice for Stanley, shared insights Wilson identi ed advisors as “the weakest link” in the nancial advisors. Wilson joined Morgan Stanley in on current cybersecurity services chain, and offered some suggestions for improving threats, trends and April 2017 following a 15-year career with industry initiatives to their personal and business practices — what she terms the National Security Agency (NSA). protect ﬁnancial data. “cybersecurity hygiene.” Drawing upon the lessons learned from last year’s Equifax breach, Wilson emphasized the importance of keeping all mission- critical software up to date by installing vendors’ updates — “patches” — immediately. Patches can be reverse-engineered by hackers, she noted, and used to hack into systems on which they have not yet been fully installed. “In the Equifax data breach, Equifax sent out a patch to their user rms, but some IT departments did not fully implement it, creating an opening for a breach,” she said. “The result: 150 million people had their personal information stolen.” The Equifax breach also compounded a growing problem in cybersecurity, Wilson pointed out: authentication. For one thing, she noted, the breach highlighted the weakness of knowledge- based security authentication like Social Security number, mother’s maiden name, and other “secret” knowledge that, in today’s world, is no longer secret. Phishing emails — as in the Nigerian prince archetype — are now informed by hacked personal information, Wilson noted, making them more authentic and much more different to identify as fraudulent. Wilson warned that advisors are now being targeted by hackers posing as prospects. “They are looking for personal information and information about the rm, and also for opportunities to download malware via links and spreadsheet

les,” she warned. ) 2 Call centers have also emerged as a top target of cybersecurity (

fraud, Wilson noted, and thus a focus of nancial rms’ SIMON . cybersecurity efforts. In this type of scam, fake clients have been

able to gain access to accounts and institute successful distribution MARTIN H

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NNTM_SUM18_22-33_Feature01_Summit.indd 26 6/18/18 11:01 AM requests. Defensive actions now being implemented in this area NAPA’s Brian Graff PARTIES OF INTEREST include biometrics, especially a validated voiceprint from the is interviewed by INCREASINGLY BEING account holder. Fox Business News TESTED IN PLAN LITIGATION correspondent The plaintiff’s bar is getting increasingly Adam Shapiro in the Action Steps exhibit hall. creative in bringing parties of interest into Wilson offered some suggestions to help individual advisors DC plan litigation efforts, panelists at a avoid being victimized by cybercrime and cyberfraud: Summit workshop session said. • Don’t use public Wi-Fi hotspots on a work device. Not only Karen Schefer, Senior Vice President can they be used to gain access to email and other data, and Senior ERISA Legal Counsel with but also to download malware to your device without your AllianceBernstein (AB), moderated a panel knowledge. Use a personal hotspot instead. with Thomas Clark, Jr. of the Wagner Law • Don’t download apps from a third party. Group and Michael Wolff, of Counsel with • Lock down what your permissions allow your apps to do. Schlicter Bogard & Denton, who offered • Don’t use public charging cords to recharge your device, like insights into current 401(k) litigation trends. those sometimes offered by Uber drivers. While noting that plan sponsors • Replace your manual passwords with a password manager take the brunt of litigation as duciaries, service, which creates and stores complex passwords in a Schefer inquired about the likelihood of secure, non-documented environment. recordkeepers and service providers being • Don’t keep client data on a laptop or other device that you added as parties in litigation. Clark noted also use for email or browsing. that the chances of that happening appear • If you deal with client data or communications outside your to be increasing. rm’s secure internal system, have a single device that you “I’m sorry to say that the chances of it use for that purpose and nothing else. No browsing, no are more common now than they were ve apps, no games — and no teenagers allowed. years ago,” Clark stated, further adding

SUMMER 2018 • NAPA-NET.ORG 27

NNTM_SUM18_22-33_Feature01_Summit.indd 27 6/18/18 11:02 AM 1

2 NAPA Nation, Country-Style

his year’s Summit featured two nights of festivities in downtown Nashville. T The rst involved a friendly takeover of the huge Wildhorse Saloon featuring a musical program headlined by up-and- coming country star Brooke Eden. The second night featured an even friendlier takeover of an entire block of Nashville’s famed Broadway, a.k.a. the “Honky Tonk Highway,” for a block party, as well as four distinguished establishments — the Crazy Town, Whiskey Bent, Tin Roof and Valentine saloons.

» Photography by Martin H. Simon and Dwayne C. Bass

Photos: 1: Brian Graff with the 2018 NAPA “Young Guns” onstage at the Wildhorse Saloon. 2: Summit attendees packed the Wildhorse Saloon in downtown Nashville. 3: Brooke Eden headlined Sunday’s Summit After Dark festivities at the Wildhorse Saloon. 4/5: Nashville’s brother duo McKenzies Mill opened for Brooke Eden. 6: The 2017 NAPA Top Women Advisors were saluted at Sunday’s NAPA After Dark event.

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NNTM_SUM18_22-33_Feature01_Summit.indd 29 6/18/18 11:02 AM that “the theories are more aggressively Wolff noted that the theory is based on a Supreme Court being brought against advisors.” He What are plan sponsors ruling, such that any service provider to a plan is a party of looking for in their explained that the plaintiffs’ rms are advisor relationship? interest and if they receive a portion of a plan’s assets knowing coming after the parties of interest, which T. Rowe Price’s Joshua that it was the result of a duciary breach, then they can be held could include any person or rm that Dietch (R) moderated liable under ERSIA for restitution. Even still, he added, “it’s a hard this year’s plan sponsor offers services to a plan. panel — Richard Clegg theory to prove.” To that end, he explained that the (L), Director of Finance Clark further emphasized that even though an advisor may be plaintiffs’ rms are coming up with and Treasurer at OC named in the plan documents as the named investment duciary, Tanner; Marjorie Mann, “‘newish’ legal theories that if you’re a Senior Attorney with the liability lies with the plan sponsor and they will always party of interest, even though you’re not a Florida Power & Light; be subject to getting sued under the theory that they failed to duciary and you participate in another’s and Jacob Nichols, monitor the named plan investment duciary. “They might win duciary breach, you can be held liable Director of Palmer Trucks. on summary judgment, they may win a trial, but it’s not going to too, and this is being tested in the courts.” prevent them from getting sued,” Clark noted. Clark noted that one theory Another interesting case that Clark described involved a rm involved a plaintiff’s lawyer going that went after a large recordkeeper for claims about how they after a recordkeeper that was named were controlling the investments on the platform and setting their as a codefendant where the primary own fees. He noted that the plaintiffs were trying to go after a allegations were against the plan sponsor. class of plans. The case started out against the advisor in a tiny He explained that the recordkeeper was plan getting sued, but apparently it was a “back door way” to

swept in over allegations that they did not suing the recordkeeper’s entire book of clients. ) 2 have a good 408(b)(2) process because To that end, Wolff explained that his rm is seeing plan (

the fees were allegedly not reasonable and sponsors attempting to push off responsibility on the plan advisor SIMON . claimed that they were liable for paying when things have gone wrong. Often you’ll see plan sponsors

the fees back. claiming they were only doing what were told to do, so they MARTIN H

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NNTM_SUM18_22-33_Feature01_Summit.indd 30 6/18/18 11:03 AM contend it’s the advisor’s responsibility, he noted. “The employer says it’s your fault; if you’re going to say it’s the employer’s fault, then it’s one or the other, and we’ll let the court gure it out,” Wolff stated in describing the plaintiff’s approach. When asked to provide tips on avoiding litigation, both Wolff and Clark emphasized the importance of documenting a process when making decisions about a plan. Quarterly meetings have minutes that lay out the reasons for all the decisions being made and if there is nothing in the minutes, Giving Back then it suggests there wasn’t a process followed, Wolff explained. He further noted that the advisor is in a “tricky situation” when The NAPA 401(k) Summit has a long tradition they’ve recommended doing something and the employer hasn’t of giving back to local host communities. This year featured a fundraising drive on behalf of the done it. “You need to protect yourselves by having documented Second Harvest Food Bank of Middle Tennessee to that you told your client to do this. If you don’t do that, you’re support their mission of feeding hungry people and setting yourself up,” Wolff cautioned. working to solve hunger issues in the community. Clark agreed with Wolff in terms of documenting process, Summit attendees responded generously, donating but further suggested that advisors take a look at what they’re a total of $5,740 to help ﬁght hunger in the Nashville area. Thank you! recommending to their clients about what speci cally they are disclosing to their plan participants. He cautioned against providing overly aggressive disclosures beyond the SPDs and 404(a)(5) participant disclosures, noting that there have been a number of defendants who have been successful under the three- year statute of limitations at the motion-to-dismiss stage. Moreover, Schefer urged advisors to make sure their service agreements are clear and de ne the scope of terms. She explained that she reviewed numerous agreements that were extremely vague in the scope of what the advisor was taking responsibility for, which could have led to anything being put on them.

THE HEX ON GEN X: HOW THE ‘LOST GENERATION’ FOUND ITS WAY Neil Howe, the nation’s Among all current generations, Generation Xers have faced some leading thinker on today’s generations, of the toughest cultural and nancial headwinds, but they have shared insights into found a way to get things done, according to Summit keynote how today’s generations speaker Neil Howe. will shape America’s future and the future Howe, a best-selling author and renowned authority on of retirement (below). generations in America, offered a look at the generations of the past 100 years, providing insight on who they are, what motivates them and how it impacts their nancial decision-making. Currently Managing Director of Demography with Hedgeye Risk Management, Howe also is known for coining the term “Millennial Generation” along with the late William Strauss, who coauthored several books with Howe. From the so-called Greatest Generation down to Millennials, Howe expounded on their “coming of age priorities, attitudes toward the establishment, and workplace reputation.” According to Howe, much of their viewpoints and beliefs were shaped by major events and turning points that occurred during each generation, such as the Great Depression and World War II, the cultural wars of the 1960s, the war on terror and the nancial crisis, as well as the post- nancial crisis era. Howe explained how each generation has its own unique perspective on nancial planning and retirement, and how marketing and advertising have changed throughout the decades to target each generation’s uniqueness. “The point of this is to say that

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NNTM_SUM18_22-33_Feature01_Summit.indd 31 6/18/18 11:03 AM these different moods here say something One major change among Millennials, he explained, is a very important about the message you decline in personal risk-taking. They want to be part of the middle respond to, the products that you buy and class, but many are avoiding the stock market because they the candidates that you vote for,” Howe perceive it as being “too volatile.” They are also the most stressed noted, adding that “… it says something generation, constantly wondering whether they’re doing okay. about how to speak to different generations Millennials are also reversing the Generation X attitude of about preparing for the next phase of life.” “leave me alone” to a protectionist attitude of wanting bene ts Howe implied that he is most worried and help with doing things, such as 401(k) orientation sessions about Generation Xers, who came of age and nancial planning assistance. during the decline of de ned bene t plans and have not had as much time to save WHY HSAs SHOULD BE PART OF YOUR in a DC-dominated environment. They RETIREMENT SAVINGS CONVERSATION are also the generation with the most Not convinced yet that health savings accounts should be unequal levels of income and wealth than incorporated in your retirement savings conversation with clients? any generation alive today and they were Panelists at a Summit workshop session sought to dispel any also the generation that got hurt the most reluctance about doing so. during the nancial crisis, Howe notes. Ryan Tiernan, National Accounts Manager with American Funds Howe referred to them as the “lost from Capital Group, moderated a discussion with Ken Forsythe, generation” and “baby busters,” who, as a Assistant Vice President for Product Strategy with EMPOWER, Jamie group, feel like they don’t belong in their Greenleaf, General Partner/Principal of Cafaro Greenleaf, and Tom respective generation. He also dubbed McKenna, Director of Institutional Sales with Health View Services. them the generation of “13,” alluding to According to the panelists, an important component in the apparent “bad luck” their generation today’s environment is educating plan sponsors about the bene ts faced while growing up, such as an of HSAs. They noted that many sponsors and participants still increase in the divorce rate, a lower birth confuse HSAs with FSAs and do not fully understand the triple tax rate and a changing culture that turned bene t that comes with them. To that end, Forsythe cited a recent Bestselling author and unfriendly to children. Their coming of age business strategist Ian EMPOWER survey that found that 56% of participants confused was shaped by parents with an attitude of Altman emphasized the use-it-or-lose-it proposition of FSAs with HSAs and only 22% “let them raise themselves,” Howe noted. the importance of understand the triple tax bene t of HSAs. understanding how Possibly as a result of this dynamic, he customers make Tiernan emphasized that the triple tax bene ts make HSAs also notes that they are more comfortable buying decisions. more of a nancial services product than a health insurance than any other generation in taking risks to get ahead. They prioritize individualism and an attitude that “we can get along” without the establishment, with a fallen trust in institutions. Generation Xers are also more accepting of 401(k) plans, but they also have a workplace reputation as not necessarily trusting their employer with the attitude of wanting to cash out and manage their own risk. The appeal for Generation Xers is getting things done and delivering on the bottom line, according to Howe. He points out how these attitudes have helped shaped marketing campaigns geared toward “personal empowerment,” such as Nike’s “Just Do It” or Prudential’s “Own a Piece of the Rock.” In turn, Generation Xers, who grew

up as the under-protected generation, ) 2 became the parents of over-protected (

kids — the Millennials. Howe noted that SIMON . Millennials focus more on family values

and taking care of their kids and parents. MARTIN H

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NNTM_SUM18_22-33_Feature01_Summit.indd 32 6/18/18 11:03 AM product. “The money goes in tax free, grows tax free and comes out tax free,” he explained. Further highlighting the savings potential, Tiernan observed that, “The 401(k) is the bedrock of retirement savings in the United States, but to just pass over a triple tax free vehicle that is getting both employer and employee contributions would be hazardous to our book of business.” How do you approach the value proposition? Greenleaf noted that it’s easier to promote to existing clients because they understand it’s adding another savings vehicle for retirement, but it’s a little more dif cult with new clients. She noted that education is key and suggested that the value proposition should be “more about looking at a holistic bene ts package and how to structure a bene t that is meaningful to employers.” Echoing Greenleaf’s comments, Forsythe explained that, in integrating the HSA, his rm looked at ultimately trying to accomplish the best possible retirement plan experience. “The best Joined by NAPA’s NAPA Welcomes way to help the advisor is to make sure the HSA does the right 2018-2019 Vice Acheson as President thing for both the employer and the participant,” he noted. “It President Jania Stout, the association’s NAPA welcomed Jeffery Acheson, CPFA, as its makes the opportunity to position the solution by the advisor to a incoming President 2018-2019 President at the opening session of the client or to a participant that much easier.” Jeffery Acheson (L) 2018 NAPA 401(k) Summit in Nashville. Forsythe also explained that, as discussions about HSAs focus thanked predecessor Acheson has nearly 40 years of experience Paul D’Aiutolo. on their potential as a retirement savings vehicle, he suggested that with advising and educating clients, providing the conversation can be addressed during the annual enrollment industry leadership and building trusted relationships. He founded Powell, Ohio-based process. “As for implementation, the future of this is looking at Advanced Strategies Group, LLC in April 2017, annual bene t enrollment process as not a health care decision but where he delivers a fiduciary-based business a nancial decision,” Forsythe proposed. He further noted that model focusing on high-income individuals, one misperception with HSA enrollment is that many believe a high-net-worth families, successful companies, contribution decision is locked in for the year, when changes can mid-size retirement plan sponsors and charitable be made throughout the year. organizations. Previously Acheson headed up the advisory services team at Corporate and Looking at HSAs from a health and wellness standpoint and the Endowment Solutions, Inc. He also spent 14 years savings that can be achieved, McKenna noted that 80% of companies as a co-managing partner of a CPA firm’s affiliated offer wellness program, but only 6% of those actually measure their wealth management arm. return on investment. McKenna explained that his rm is trying to Other changes on the NAPA Leadership have employees realize how much they could save from modifying Council (LC) for 2018-2019 include: » Last year’s Vice President, Jania Stout, their behavior, which could then be rolled up to the employer level. Co-Founder, Fiduciary Plan Advisors at As an example, McKenna noted that little incremental HighTower in Baltimore, MD, is this year’s changes in lifestyle with respect to chronic conditions can result in President-Elect. average savings of $1,200 per person per year, which can result in » Pat Wenzel, Managing Director–Wealth several million dollars a year in savings for a large company when Management, Merrill Lynch, Houston, TX, extrapolated out. replaces Stout as Vice President. » D’Aiutolo replaces his predecessor, 2016- “We’ve talked about this in the retirement space for quite some 2017 President Sam Brandwein, as an ex time, but if we can get in the position where we’re not just going in officio member. and saying we can save you some money in your 401(k), but we can » Corby Dall, Barbara Delaney and add real money to your company’s bottom line is where I see the Charlie Snyder join the LC as at-large next phase of this industry going,” McKenna emphasized. members, replacing Wenzel, Jamie Greenleaf and Michael Perry. » Jon Anderson joins the LC as a Firm Partner WHAT HAPPENS TO representative, replacing Ken Pardue. WHAT HAPPENS IN VEGAS? It stays there — everyone knows that. The thing is, people who go to Las Vegas go home, and come back to visit in the future. And that’s exactly what we’ll do next year. Make plans to attend the 2019 NAPA 401(k) Summit, April 6-7, 2019, in Las Vegas, NV. If you missed the last Summit in Vegas, in 2017, you can get a sense of what it was like by pointing your web browser to https://bit.ly/2JmYoyW. N

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COVER STORY 6/18/18 11:04AM

SEITA / SHUTTERSTOCK.COM By Judy Ward The Young

GunsMeet NAPA’s 2018 Top Retirement Plan Advisors Under 40 — the “Young Guns” — and hear from six Young Guns on how to develop and hold onto younger advisors.

“Every Luke Skywalker needs an Obi-Wan Kenobi,” says Young Gun Jake Connors, senior director, institutional consulting at Greensboro, North Carolina-based Compass Financial Partners, LLC. As an apprentice, the Star Wars hero Skywalker got invaluable guidance from the far more experienced Jedi Master. “I have talked to several of the other Young Guns, and I don’t think there is one who’d say that they did it on their own. It is never, ‘I just started my business in my basement,’” Connors says. “They all say, ‘If it hadn’t have been for X, Y, and Z, I wouldn’t have made it in this business.’ There is always some support structure: Somebody is lowering a ladder down, so that you can climb up.”

NNTM_SUM18_34-43_CoverStory.indd 35 6/18/18 11:04 AM From left: Jake Connors, senior director, institutional consulting at Compass Financial Partners, LLC.; Christopher Kulick, senior vice president at CAPTRUST; Steven Wilkinson, managing director at Monarch Plan Advisors.

That career-development ladder’s a here with any question that comes up, and Asked what mistakes get made with lengthy one for plan advisors, Connors get an answer,” he says. “And I can bring in newer advisors, Mark Beaton points to says: It’s a very complicated industry for our internal experts as I need them to help not giving them enough support to let learning how to serve clients well, and one clients, in areas like investment research, them develop. “A lot of times, people are with a “ridiculously long” sales cycle for operations, legal and compliance issues, and kind of ‘thrown to the wolves.’ That’s developing new clients. “It is a long road,” participant education. Their expertise frees not the way to develop new advisors he says. “I was in wealth management for me up to pursue my highest and best use, at all,” says Beaton, Denver-based vice ve years, then another ve years in service which is nding and keeping clients.” president and retirement plan consultant before becoming a lead plan advisor. Even Six Young Guns talked about their at Bukaty Companies Financial Services. now, ve-plus years into this role, I feel like advice on how to support talented young “The biggest thing is that you can give a I’m really just beginning to hit my stride.” plan advisors, and how to avoid making younger advisor all the weapons to go out Young Gun Christopher Kulick is mistakes that led them to switch rms. and sell, but ultimately that person needs not yet 40 years old, and in eight years support. If an advisor who’s only been at CAPTRUST, his practice has grown Don’t Push Sales in the business for six months sets up an to have $6.5 billion in assets under Too Hard appointment to talk with a $50 million advisement. “It’s been great, and it’s just When Steven Wilkinson started as a nancial plan sponsor, that’s going to be very getting started,” says Kulick, a senior advisor trainee at a large Wall Street rm, intimidating for the new advisor.” vice president based in Doylestown, he was immediately expected to focus on Beaton enjoys sales work. “I like the Pennsylvania. When he talks about what prospecting for new business. “They said hunt, I like getting in front of people,” he drew him to the advisory rm and what something like, ‘Here’s your desk, here’s your says. But even he didn’t like getting “thrown keeps him there, he focuses a lot on the phone, here’s where the restroom is, good in the deep end” when he began his nance support he gets internally from colleagues. luck,’” recalls Wilkinson, now managing career at a municipal bond brokerage. “It “Culture was the most important part director at Monarch Plan Advisors in Simi was actually horrible for me. It was like, of the decision for me: the way the Valley, California. “I would get in the of ce ‘Here’s the Yellow Pages, go.’” organization is structured and aligned, and and start cold-calling at 5:30 a.m., and However, when Beaton later the collaboration among advisors. We do wouldn’t stop until 7:00 p.m.” He realizes cofounded a bene ts consulting rm, he not compete against each other here,” he now how valuable it would have been if he’d worked with two experienced colleagues says. “In some other organizations, it is faced less sales pressure and had more time who patiently showed him the better way very competitive.” for expanding his knowledge base in areas to nd new clients. “There was no formal The advisory rm’s culture of peer- like investment analytics, testing rules, and training program, but I sat with them to-peer outreach means Kulick never has other regulations. “De nitely a structured while they did meetings with sponsors. to hesitate to seek another CAPTRUST training program for newer advisors would And starting to mirror the way that they advisor’s help with a client’s issue. “I can put them in a better position to succeed,” were selling was the best way for me to call any of the more than 100 other advisors he says. learn,” he recalls. Speaking about what he

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NNTM_SUM18_34-43_CoverStory.indd 36 6/18/18 11:05 AM “What are a learned from them, he says, “Everybody especially when you are young in this wants to get in there and talk about business.” lot of advisory how great they are. But it’s more about Before newer advisors can focus on listening to the sponsor. A lot of times, signing new clients, they need a foundation ﬁ rms doing sponsors don’t even understand their of understanding what’s involved in working own needs. So for the advisor, it’s asking effectively with existing plan clients, wrong with the right questions, and then listening as says Chris Krueger, managing partner at the sponsor talks, and helping to identify MHK Retirement Partners in Middleton, young those needs.” Wisconsin. He feels fortunate that he started his plan advisory career in a client service- advisors? Develop Them from focused path, rather than a pure sales- the Ground Up focused job. “Sixteen or seventeen years later, Not offering Jessica Ballin, who started her career at running an advisory practice, I’ve found that them a path to Wachovia Securities, says she learned I do not want anybody who is newly hired gradually how to work effectively with here to sell anything,” he says. “First, I want ownership.” client sponsors and participants. “In the them to learn the processes involved in client beginning, I would go with the broker I service. Why would you want people selling — Christopher Kulick, worked with to all the committee meetings something that they don’t even understand?” CAPTRUST and education meetings he did, and just MHK Retirement Partners created watch him present,” says Ballin, now a a training program to teach newer principal at 401(k) Plan Professionals advisors how to do plan advisory work. in Edina, Minnesota. “Gradually, with The program utilizes retirement plan smaller clients, I started doing meetings on management software Krueger developed my own.” It took her ve to seven years to called Standard of (k)are™. The software learn what she needed to take a lead role provides for a step-by-step, standardized in advising clients. “The way to learn is approach to the processes needed to follow from the ground up,” she says. “You have duciary requirements and industry best to learn things like the personalities of practices in retirement plan work. MHK the clients. And you have to be con dent couples that tool with having newer in your knowledge about retirement plan advisors “shadow” more-experienced issues: You have to sound like an expert, advisors at the rm.

From left: Chris Krueger, managing partner at MHK Retirement Partners; Mark Beaton, vice president and retirement plan consultant at Bukaty Companies Financial Services.

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NNTM_SUM18_34-43_CoverStory.indd 37 6/18/18 11:05 AM “There’s a “Advisors learn by doing here — but Understand What the caveat is that there’s no sales goal Motivates Them transition in being put in place for them,” Krueger says. As Krueger made the switch into plan “The ‘shadowing’ side of it is that other, advisory work in 2008, he saw a real the retirement more-experienced advisors will take new divergence starting to occur in what advisors under their wing. We have a motivated older versus younger people plan business requirement that a newer advisor has to in that career track. “There’s a transition watch a more-experienced advisor do a in the retirement plan business from, ‘I from, ‘I want to certain number of meetings before we let want to make a lot of money’ to, ‘I want them do the meetings on their own. We to go out and do good for people,’” he make a lot of don’t just send newer advisors out and say, says. “Younger advisors want to make a ‘Good luck, Godspeed.’” difference in people’s lives.” Other, ashier money’ to, areas of nance offer more opportunity ‘I want to go Mentor Them — to make as much early-career money as and Learn from Them possible. “It’s a very slow grind to develop out and do When Connors transitioned to the a career in the retirement plan business, but retirement side of the business from wealth the learning opportunities are vast,” he says. good for people.’” management, he took a job at a national At the same time, several Young Guns — Chris Krueger, MHK retirement-focused RIA. “I totally grew pointed to a sense of ownership as an issue up over there,” he recalls. “My rst job that leads accomplished young advisors Retirement Partners there was in participant education, and to change rms. It’s common for newer that was a natural transition from wealth advisors to work on a at-salary basis, Ballin management for me. Then I was fortunate says. Their employers sometimes “don’t to work under two senior partners as an create a compensation structure that will internal relationship manager, coordinating give younger advisors an incentive to sign resources our sponsor clients needed new clients,” she says. “If you want to retain within the organization. I got very lucky younger advisors, you have to be willing to that the two advisors I was working with provide a compensation structure that makes were really patient with me. I asked some it worthwhile — maybe a bonus that gives pretty dumb questions at rst.” the younger advisors an incentive to generate The two more-experienced advisors leads, and to bring in new business.” not only taught Connors, but welcomed When Kulick thinks about mistakes his input, he remembers. “By the end, I was advisory rms make with young advisors, challenging their thinking,” he says. “It’s his mind turns in part to incentivizing top really easy, especially for more-senior folks performers. “What are a lot of advisory who have had success, to believe that the rms doing wrong with young advisors? way you’re doing it is the way to do it. But Not offering them a path to ownership,” it’s rare that anyone corners the market on he says. “That was a draw for me, and it is good ideas. Sometimes, younger advisors a draw for a lot of other high-performing can improve the way things are done.” advisors. Some younger advisors get to the Wilkinson, now in a position to hire point where they have built out a great newer advisors at Monarch Plan Advisors, practice, but they don’t have the ability to has brought Michael Fine onto the team. get any equity in the rm. Maybe there are He’s mentored Fine on the different one or two senior advisors who are getting aspects of the business, including plan all the bene t of ownership.” He’s gotten pricing, investment analytics, regulations, ownership over time at CAPTRUST, in a and of course, prospecting. “He helps me system that rewards not only production stay sharp with the questions he asks me,” and client retention, but internal Wilkinson says. Now Fine’s interested collaboration. “Everyone has a chance to in pursuing a new business-development be an owner here,” he says. “So we have direction for Monarch, putting on one common goal: to serve our clients, and educational seminars for potential plan grow our business.” N sponsor clients. “You need to give them the exibility to follow the drumbeat they’re » Judy Ward is a freelance writer who specializes in writing hearing,” Wilkinson says. about retirement plans.

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NNTM_SUM18_34-43_CoverStory.indd 38 6/18/18 11:05 AM Jessica Ballin, principal at 401(k) Plan Professionals.

SUMMER 2018 • NAPA-NET.ORG 39

NNTM_SUM18_34-43_CoverStory.indd 39 6/18/18 11:05 AM COMMON ‘GROUNDS’ This year’s “crop” of top young advisors was diverse in tenure, aligned in purpose. By Nevin E. Adams, JD

Established in 2014, the 2018 Top Retirement Plan Advisors Under 40 were drawn from hundreds of nominations provided by NAPA broker- dealer/RIA Firm Partners. Nominees were required to submit responses to an application comprised of a series of quantitative and qualitative questions about their experience, size and composition of their practice, awards and recognitions, and industry contributions, which were then reviewed by a panel of senior advisor industry experts, who, based on those criteria, and following a broker-check review, selected the top young advisors. These “Young Guns” are widely seen as the future leaders of the retirement plan advisor industry. This year we received nearly 600 nominations, 15% more than in 2017 (which, in turn, was a 20% increase from the previous year). While each year’s nominations contain an inspiring pool of potential candidates, due to both the size and quantity of qualifying advisors this year, we kept the list to 75. This year’s “crop” was a diverse group; roughly half had between 10-15 years of experience as a retirement plan advisor, just over a third had between 5 and 10 years, and just over 10% had more than 15 years. One had less than 5 years of experience as a retirement plan advisor — though they had industry tenure in other roles. There was also diversity in the typical plan sizes for which they were lead advisor — which, of course, might be another way of saying there was no “typical” plan size focus in this group. A clear plurality — 40% — served plans in the $10-50 million segment, but the rest of the group spread remarkably evenly between plans ranging from less than $10 million (8%) to $50 to $100 million (9%) to $100 million to $250 million (15%) to $250 million to $1 billion (16%) to over $1 billion (12%). But what they all had in common was a focus on retirement plans, a commitment to helping plan sponsors fulfi ll their responsibilities, and a desire to help American workers achieve a fi nancially successful retirement. Our thanks to all who participated in the nomination and voting process, the hundreds of nominees, and our panel of judges, who gave selfl essly of their time and energy to make this year’s process another resounding success. Most importantly, our heartiest congratulations to this year’s Top Retirement Plan Advisors — and all you have done, and will continue to do, for the many plans, plan sponsors, and plan participants you support.

Garrett Anderson Julie Braun Firm: Plan Sponsor Consultants Firm: Morgan Stanley Broker-Dealer / RIA: LPL Financial Broker-Dealer / RIA: Morgan Stanley

Alexander G. Assaley III Eric Brunton Firm: AFS 401(k) Retirement Services Firm: Merrill Lynch Broker-Dealer / RIA: Commonwealth Financial Network Broker-Dealer / RIA: Merrill Lynch

Jessica Ballin Ryan Campagna Firm: 401k Plan Professionals Firm: Sentinel Beneﬁ ts and Financial Group Broker-Dealer / RIA: Gobal Retirement Partners Broker-Dealer / RIA: Sentinel Pension Advisors

Ken Barnes Dominic Casanueva Firm: SageView Advisory Group Firm: Merrill Lynch Broker-Dealer / RIA: SageVew Advisory Group Broker-Dealer / RIA: Merrill Lynch

Andrew Bayliss Brian Catanella Firm: Marsh & McLennan Agency Firm: UBS Financial Services Inc. Broker-Dealer / RIA: MMA Securities Broker-Dealer / RIA: UBS Financial Services Inc.

Mark Beaton John Clark Firm: Bukaty Companies Financial Services Firm: Heffernan Retirement Services Broker-Dealer / RIA: Resource Investment Advisors Broker-Dealer / RIA: Global Retirement Partners

Tony Black Jake Connors Firm: SevenHills Beneﬁ t Partners Firm: Compass Financial Partners Broker-Dealer / RIA: Pensionmark Financial Group Broker-Dealer / RIA: LPL Financial

Natasha Bonelli Joseph Conzelman Firm: Merrill Lynch Firm: Peak Financial Group, LLC Broker-Dealer / RIA: Merrill Lynch Broker-Dealer / RIA: LPL Financial

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NNTM_SUM18_34-43_CoverStory.indd 40 6/18/18 11:06 AM Dominic Corleto Austin Gwilliam Firm: Rouleau Bevans Corleto Investment Consulting Group Firm: GRP Financial Broker-Dealer / RIA: Wells Fargo Advisors Broker-Dealer / RIA: LPL/Global Retirement Partners

Brady Dall Erin Hall Firm: 401k Advisors Intermountain Firm: Wells Fargo Advisors Broker-Dealer / RIA: Resources Investment Advisors Broker-Dealer / RIA: Wells Fargo Advisors

Taylor Dance Michael D. Hill Firm: GBS Retire Firm: Graystone Consulting Broker-Dealer / RIA: Resources Investment Advisors Broker-Dealer / RIA: Morgan Stanley

Kelli Davis Jared Holden Firm: CSI Advisory Services Firm: Merrill Lynch Broker-Dealer / RIA: LPL/Global Retirement Partners Broker-Dealer / RIA: Merrill Lynch

Jeffrey Dykstra Zach Hull Firm: Merrill Lynch Firm: Compass Financial Partners Broker-Dealer / RIA: Merrill Lynch Broker-Dealer / RIA: LPL Financial

Shaun Eskamani Kameron Jones Firm: CAPTRUST Firm: NFP Broker-Dealer / RIA: CAPFinancial Partners Broker-Dealer / RIA: NFP Retirement

Derek Fiorenza Joseph M. Juliano Firm: Summit Group Retirement Planners, Inc. Firm: Merrill Lynch Broker-Dealer / RIA: LPL/Summit Group Retirement Planners, Inc. Broker-Dealer / RIA: Merrill Lynch

Jessica Fitzgerald Jonathan Karelitz Firm: Morgan Stanley Firm: Morgan Stanley Broker-Dealer / RIA: Morgan Stanley Broker-Dealer / RIA: Morgan Stanley

Geoffrey Forcino Mike Kasecamp Firm: Kathmere Capital Management Firm: CBIZ Retirement Plan Services Broker-Dealer / RIA: LPL Financial Broker-Dealer / RIA: CBIZ Financial Solutions

Thomas B. Ford Jack Keller Firm: Morgan Stanley Firm: CBIZ Retirement Plan Services Broker-Dealer / RIA: Morgan Stanley Broker-Dealer / RIA: CBIZ Financial Solutions

John Frady Amy Kinsman Firm: CAPTRUST Firm: Cafaro Greenleaf Broker-Dealer / RIA: CAPTRUST Broker-Dealer / RIA: American Portfolios

Christian R. Garces Cameron Kleinheksel Firm: Key Client Financial Advisors Firm: Plante Moran Financial Advisors Broker-Dealer / RIA: Wells Fargo Financial Network Broker-Dealer / RIA: Plante Moran Financial Advisors

Steven Gibson Vincent Ko Firm: Plante Moran Financial Advisors Firm: Precept Advisory Group Broker-Dealer / RIA: Plante Moran Financial Advisors Broker-Dealer / RIA: Precept Advisory Group

Wesley Golie Kevin Kocsis Firm: First Interstate Bank Firm: CBIZ Retirement Plan Services Broker-Dealer / RIA: LPL Financial Broker-Dealer / RIA: CBIZ Financial Solutions, Inc.

Rick Gumina Matt Kory Firm: Morgan Stanley Firm: PANGEA Retirement Partners Broker-Dealer / RIA: Morgan Stanley Broker-Dealer / RIA: LPL Financial

SUMMER 2018 • NAPA-NET.ORG 41

NNTM_SUM18_34-43_CoverStory.indd 41 6/18/18 11:06 AM Chris Krueger Mitch Ryan Firm: MHK Retirement Partners Firm: Morgan Stanley Broker-Dealer / RIA: Private Advisor Group Broker-Dealer / RIA: Morgan Stanley

Christopher Kulick, Jr. Richard Sauerman Firm: CAPTRUST Firm: NFP Broker-Dealer / RIA: CAPTRUST Broker-Dealer / RIA: NFP Retirement

Vanessa Larareo Mark Schatzel Firm: SageView Advisory Group Firm: The Beacon Group Broker-Dealer / RIA: Cetera Broker-Dealer / RIA: LPL Financial

Jasper Mallard Jason Schultz Firm: Hub International Investment Services Firm: Morgan Stanley Broker-Dealer / RIA: Cambridge Investment Research Broker-Dealer / RIA: Morgan Stanley

Damon Marra Andrew Shimp Firm: Retirement Plan Consulting Group Firm: CAPTRUST Broker-Dealer / RIA: LPL Financial Broker-Dealer / RIA: CAPTRUST

Jared Marshall Courtenay Shipley Firm: Merrill Lynch Firm: Retirement Planology, Inc. Broker-Dealer / RIA: Merrill Lynch Broker-Dealer / RIA: Retirement Planology, Inc.

Joseph T. Matis David Shnapek Firm: Morgan Stanley Firm: SageView Advisory Group Broker-Dealer / RIA: Morgan Stanley Broker-Dealer / RIA: SageView Advisory Group

David Montgomery Rick Spriano Firm: Fidelis Fiduciary Management Firm: LPL Financial Broker-Dealer / RIA: Independent Financial Partners Broker-Dealer / RIA: LPL Financial

David Morehead Todd Stewart Firm: Retirement Beneﬁ ts Group Firm: SageView Advisory Group Broker-Dealer / RIA: LPL Financial Broker-Dealer / RIA: SageView Advisory Group

Travis Power Paul Watko Firm: Bukaty Companies Financial Services Firm: Eminent Wealth Strategies Broker-Dealer / RIA: Resources Investment Advisors Broker-Dealer / RIA: LPL Financial

Nicholas Ravella Brian Wiese Firm: Wells Fargo Advisors Firm: Morgan Stanley Broker-Dealer / RIA: Wells Fargo Advisors Broker-Dealer / RIA: Morgan Stanley

Stephanie Reese Steven Wilkinson Firm: Tutton Insurance Services, Inc. Firm: Monarch Plan Advisors Broker-Dealer / RIA: Pensionmark Financial Group Broker-Dealer / RIA: Monarch Plan Advisors

Jim Reimold Andrew Ziergiebel Firm: Mid-Atlantic Planning Services Firm: Marsh and McLennan Agency Broker-Dealer / RIA: LPL Financial Broker-Dealer / RIA: Marsh and McLennan Agency

Tony Robke Andrew Zito Firm: Merrill Lynch Firm: LAMCO Advisory Services, Inc. Broker-Dealer / RIA: Merrill Lynch Broker-Dealer / RIA: LAMCO Advisory Services, Inc.

Dan Rothenberg Firm: UBS Financial Services Inc. Broker-Dealer / RIA: UBS Financial Services Inc.

42 NAPA NET THE MAGAZINE

NNTM_SUM18_34-43_CoverStory.indd 42 6/18/18 11:06 AM

NNTM_SUM18_44-47_Feature02_NonquailifiedPlans.indd 44 FEATURE an advisor’s business. That’s how nonqualiﬁedplanscancomplement A Moat Building BY JUDY WARD 6/18/18 11:07AM

MATT GIBSON / SHUTTERSTOCK.COM A Bridge For Acheson, quali ed plans make up 50% of his work and nonquali ed plans another 20%, with wealth management accounting for the other 30%. There’s a synergy in that mix, he says: Top executives generally sit on the quali ed plan’s oversight committee, participate in the nonquali ed plan, and are potential wealth management clients as well. “For me, nonquali ed plans are a bridge between the quali ed plan and my work in wealth management,” he says. “When I work on a nonquali ed plan, I have a very personal and speci c reason to go talk to the highly compensated executives. Talking about the nonquali ed plan often ows naturally into a discussion of how that ties into what the executives are doing independently, outside the plans, with their planning and other investments.” Acheson thinks that the Tax Cuts and Jobs Act — which as initially proposed would have killed deferred compensation plans — wound up bene tting NQDC plans. “Both the initial House and Senate versions of the legislation would have decimated nonquali ed plans, but they quickly backed away from that,” he says. “And the end result has actually had the opposite effect on nonquali ed plans.” For example, the new limits on state and local income tax deductions may motivate more eligible employees to think about their company’s ntensifying competition for deferred compensation plan. “If they live in a high-tax state, 401(k) clients has driven many that may cause them to say, ‘I want to nd ways to defer more plan advisors’ fees down lately, income,’” he says. Plus, he says that lower corporate tax rates I NAPA President Jeff Acheson make the math work better for employers. says. “So now they’re asking, Principal Financial sees plenty of potential now for ‘What else can I do to develop advisors to help employers create new nonquali ed plans, says more relationships and offer more services to my existing Gregory Linde, Principal’s SVP-Individual Life in Des Moines, clients?’” says Acheson, Certi ed Private Wealth Advisor with Iowa. “We think there’s a lot of opportunity in the smaller the Advanced Strategies Group in Powell, Ohio. “It’s about market, at companies with less than 1,000 employees,” he not being commoditized as an advisor.” says. “With the improving economy and the tighter labor Acheson suggests that advisors think about adding work market, companies are having more trouble attracting and with nonquali ed deferred compensation plans (NQDCs) retaining key executives. Putting in a good nonquali ed plan to their service model, as he has. “For advisors competing allows smaller employers to compete for talent on a more against other advisors for business, similarities don’t sell even footing with larger companies.” — differences do,” he says. An advisor knowledgeable “A nonquali ed plan has to evolve as the employer about NQDC plans can add another dimension, he says: evolves,” Linde says. “Some plans have not been kept up Talking to existing and potential clients about utilizing a to date. Helping a client do that is a way for advisors to nonquali ed plan as a way to better recruit, reward, and differentiate themselves to employers and extend that retain key employees, while also giving those key employees relationship. The key opportunity is for them to help an more opportunity to defer income and boost their saving for employer on a more holistic basis if they’re providing advice retirement. on both the quali ed and the nonquali ed plan.” “Think of the client’s 401(k) plan as a castle. By adding Ryan Campagna, one of this year’s NAPA Top a nonquali ed plan, I’m building a moat around it,” Acheson Advisors Under 40 (a.k.a. “Young Guns”) and a Wake eld, says. “The more things that I’m doing for that employer, the Massachusetts-based senior vice president at Sentinel Bene ts less likely I am to lose that relationship to another advisor. & Financial Group, works with both types of plans. “The Because I can serve both the quali ed and nonquali ed plans, more you can differentiate yourself as an advisor, the better,” I keep the ‘barbarians at the gate.’ Plus I’m getting paid to he says. “If I can help a sponsor solve the unique issues it has deepen my relationship with that client, through the key with the nonquali ed plan — which not a lot of advisors can executives.” help them solve — that can help set me apart.”

NNTM_SUM18_44-47_Feature02_NonquailifiedPlans.indd 45 6/18/18 11:07 AM “Very few people ask for a nonqualiﬁed plan by name. The conversation more likely starts with, ‘Ryan, here’s what I’m ticked off about…’” — Ryan Campagna, Sentinel Beneﬁts & Financial Group

Asked how to broach the topic of helping a client de ciencies for a plan in one or more of those areas,” Senior start a nonquali ed plan, Campagna says he looks rst Vice President Mike Shannon says. He and others talked for indications of the need for one at a particular client. about where a plan advisor could add value on the following “Sometimes you will hear the employer talk about how it four issues. wants to look at providing an additional bene t to help retain key talent. Sometimes it’s key people complaining about PLAN DESIGN taxes or talking about how they want to defer more of their “It’s all about constructing the plan design to meet the compensation,” he explains. “It’s more about looking for sponsor’s goals and objectives today,” Campagna says. the warning signs, not about just trying to promote it. And “Oftentimes, you nd that they have an antiquated plan very few people ask for a nonquali ed plan by name. The design — there is often a ‘set it and forget it’ approach. As an conversation more likely starts with, ‘Ryan, here’s what I’m advisor, you want to make sure that the plan they have today ticked off about…’” accomplishes what the employer wants it to accomplish.” Working on a nonquali ed plan can be very challenging Nonquali ed plans often get designed originally with a because of both the considerable exibility and the expertise lot of input from the key executives who’ll participate. “If the needed, Campagna says. “Within the boundaries of the plan was set up 10 years ago for the CEO, CFO, and CIO, plan documents and the typical plan design, there are only today the company may have three different people in those so many ways that you can design a quali ed plan. With a jobs,” he says. “Is the plan still relevant for them?” nonquali ed plan, you can design it any way you want, so Advisors who become involved in the decisions regarding the possibilities are limitless,” he says. “Also, if you want to the design of a nonquali ed deferred compensation plan advise nonquali ed sponsors on areas like how to fund their need to keep in mind that highly technical rules in Code plan, you’re looking at whether to fund it with mutual funds Section 409A apply, says attorney Bruce McNeil, a partner or with life insurance. Now you are bringing in the need for at The Wagner Law Group in Boston. These rules differ from insurance expertise. If you are not comfortable that you’re the rules that apply to quali ed plans, he says, and an advisor an expert in areas like that, you have to look to partner with should get someone with legal expertise in that area involved. someone who is.” “If the plan is designed in a way that does not satisfy 409A, and the IRS or an auditor nds it, the plan participants can Where You Can Add Value be subject to signi cant compliance-failure penalties under In its work as a nonquali ed plan provider, Walnut Creek, Section 409A,” he explains. “The plan participants can be California-based Newport Group, Inc. utilizes a diagnostic subject to taxation on their deferred compensation at the tool that looks at a plan’s status in ve major areas: plan highest tax rate, plus an additional excise tax of 20% on design, investment menu, funding strategy, recordkeeping the amount involved. The participating executives would be platform, and participant education/communications. “Ninety unhappy about that — and if they were unhappy, others with percent of the time with new clients, we nd signi cant the company would be unhappy, too.”

46 NAPA NET THE MAGAZINE

NNTM_SUM18_44-47_Feature02_NonquailifiedPlans.indd 46 6/18/18 11:07 AM FUNDING AND INVESTMENTS In a nonquali ed plan, deferred compensation does not have to be set aside by an employer, but employers have the option to set money aside in a rabbi trust, McNeil says. Then those assets get invested pursuant to the rabbi trust’s terms. “That is where the advisor has an opportunity to help the employer invest the assets and increase the bene ts provided by the plan,” he says. “Those investments may look exactly like the investment options available under the quali ed plan, or they may look very different.” Employers often seek to set aside invested assets to address the nonquali ed plan’s liabilities, Linde says. “There’s a need to review whether the employer has appropriately nanced its plan,” he says, “to make sure that the employer understands the future liabilities that exist, and has made conscious decisions about if it wants to nance the liabilities For advisors interested in this market, NAPA soon will launch a certificate — and if so, how to nance the liabilities.” program and an annual conference Frequently the same level of oversight has not been focused on nonqualified plans. brought to investing nonquali ed plan assets as in quali ed The September 23-25 conference plans — and that’s an opportunity for advisors, Shannon says. in Chicago will include a bootcamp “Oftentimes the plan provider will say something like, ‘Here’s for advisors seeking an educational certificate, a full day of conference the 50 investments we offer,’ and the plan will utilize all of sessions on topics like nonqualified them. We like to see the same level of rigor with investment plan design, best practices in business oversight that we see in quali ed plans.” development, and opportunities to network with NQ industry providers. VENDOR SELECTION There is a much smaller universe of providers for nonquali ed Additional information about the Nonqualified Plan Advisor plans than quali ed plans, Acheson says. “If you count the Conference is available at prominent players in the nonquali ed space, it is probably http://napanqdcforum.org. less than 15,” he says. “But they all differ in what they offer. An advisor can position himself or herself as a concierge to introduce the sponsor to the right third-party vendors.” Don’t let the tail wag the dog in picking a vendor for a nonquali ed plan, Shannon recommends. “What I mean is that the recordkeeping platform’s capabilities should not limit plan design for a nonquali ed plan, just because there are certain things the platform can’t handle,” he says. “You need to look for a platform built speci cally for nonquali ed plans.”

EDUCATION An advisor can make a meaningful contribution by helping eligible employees understand how the nonquali ed plan works and how it differs from the quali ed plan, Shannon says. “When we do surveys, it’s always true that one of the top reasons eligible executives don’t participate in their nonquali ed plan is that they don’t understand the plan,” he says. “Just because someone is an executive doesn’t mean he or she will take the time to understand the plan on their own. In actuality, they probably have less time to spend understanding the plan.” N

» Judy Ward is a freelance writer who specializes in writing about retirement plans.

SUMMER 2018 • NAPA-NET.ORG 47

NNTM_SUM18_44-47_Feature02_NonquailifiedPlans.indd 47 6/18/18 11:08 AM FEATURE COM . SHUTTERSTOCK / SVETLANA LUKIENKO

NNTM_SUM18_48-51_Feature03_Rollovers.indd 48 6/18/18 11:16 AM RECO MMENDING R O LLO VERS

WHAT ADVISORS (STILL) SHOULD KNOW AND DO.

by fred reish & joshua waldbeser

ove it, hate it, or somewhere in between, everyone can agree that the 5th Circuit’s decision to vacate the DOL duciary rule has created uncertainty about a number of issues. One of them is the nature of an advisor’s1 obligations when recommending a rollover from a retirement plan to an IRA. Separate and apart from the rule, it is important not to lose sight of other sources of regulation. As applicable to different types of advisors, FINRA and the SEC have both issued guidance on this important topic.

LIn this article, we hope to help one of which is that the advice must be types of advisors can be advice duciaries advisors cut through the confusion. Let’s provided on a “regular basis.” If an advisor under the functional ve-part test, which is start by discussing the effect of the 5th doesn’t have an existing relationship with important in light of the discussion below. Circuit’s ruling. the plan, a recommendation of an IRA rollover would not generally satisfy the Advisory Opinion 2005-23A REINSTATED DOL GUIDANCE “regular basis” prong, and possibly others. Another effect of the 5th Circuit’s ruling The 5th Circuit’s ruling says that the rule In that case, because the recommendation is that previous DOL guidance on IRA is vacated in toto, meaning entirely.2 This is not duciary advice, ERISA’s duties of rollovers is reinstated. In Advisory Opinion means the narrower 1975 DOL regulation prudence and loyalty don’t attach, and 2005-23A, the DOL adopted a position de ning “ duciary” investment advice still the advisor does not commit a prohibited that a person recommending an IRA applies. It also means that the Best Interest transaction for “ duciary self-dealing” rollover would not be acting in a duciary Contract (BIC) Exemption is not available. by recommending a rollover to an IRA capacity so long as that person is not that will pay the advisor additional otherwise a plan duciary. However, it went The 1975 Regulation compensation. on to indicate that if the person is otherwise The now-reinstated 1975 regulation In our experience, RIAs usually act a plan duciary, such a recommendation says that, to be an advice duciary, a as duciaries to their retirement plan (including merely “responding to person must provide investment advice clients. For brokers, the issue may be more participant questions” about the that satis es ve distinct requirements — “facts-and-circumstances” driven. But both advisability of distribution options) would

NNTM_SUM18_48-51_Feature03_Rollovers.indd 49 6/18/18 11:16 AM transactions will not be assessed under constitute an exercise of duciary discretion may, according to the advisory opinion, the same conditions that preclude DOL over plan management. In this latter case, constitute a prohibited transaction. The BIC enforcement. Remember that the BIC ERISA’s duties of prudence and loyalty, and Exemption is gone, and “pre-rule” prohibited Exemption’s impartial conduct standards the requirement to avoid prohibited self- transaction exemptions that are still on the require that: dealing, would apply. books don’t provide clear relief for rollover • advice be in the “best interest” of the Particularly on the second point, recommendations. So, for advisors who are investor; the DOL’s position is controversial. otherwise plan duciaries — say, advisors to • the compensation to the advisor and Under ERISA, only certain functions the plan — the question is: what now? rm, their af liates, etc. not exceed a are “ duciary” in nature, and duciary Fortunately, the DOL has recognized reasonable level (this is an industry status attaches only “to the extent” a this vacuum. On May 7, 2018, it issued standard); and duciary function is being carried out. Field Assistance Bulletin (FAB) 2018-02 • no misleading statements be made to This is understood to mean that whether announcing a temporary enforcement the investor. a particular function is a duciary policy as to prohibited transactions. The The FAB does not bind private parties, function should not depend on the FAB is applicable retroactively to the rule’s meaning that it cannot directly prevent person’s duciary status as to other implementation date of June 9, 2017, and ERISA duciary breach claims. However, the “best interest” standard is functionally the equivalent of ERISA’s prudence and loyalty requirement. A duciary advisor who satis es the “best interest” and other impartial conduct standards is unlikely to have breached any ERISA-imposed duties. So, even though the BIC Exemption has been set aside along with the rest of the duciary rule, what the FAB essentially does is to provide for non-enforcement where the impartial conduct standards set forth in the BIC Exemption are satis ed. Since the BIC Exemption was the only “clearly applicable” exemption for IRA rollovers, it contains the most reliable guidance we have on what the DOL thinks “best interest” means in the context of a rollover recommendation.

BIC ‘Best Interest’ Under the BIC Exemption, to determine whether an IRA rollover would be in the investor’s “best interest,” the advisor matters. Furthermore, the characterization prospectively until further exemptions or would have been required, at a minimum, of a rollover recommendation as a guidance are issued. In relevant part, it to consider for the plan and the IRA the: discretionary act is arguably dubious. states that: • investment options; However, this is the DOL’s position, and • fees and expenses; and the safe approach is to follow the guidance …the Department will not • services. in the advisory opinion until different pursue prohibited transactions This would require the advisor to guidance is issued. “Existing” duciary claims against investment request certain information about the advisors to plans should therefore expect advice duciaries who are plan (including the “comparative chart” that they will be considered duciaries when working diligently and in of investment options provided to de ned recommending IRA rollovers, and conduct good faith to comply with the contribution plan participants)3 and

themselves accordingly. impartial conduct standards consider the investment objectives, risk COM . for transactions that would tolerance, nancial circumstances and TRANSITION RELIEF have been exempted in the BIC needs of the participant before making Unless the IRA pays the advisor and his or her Exemption… (Emphasis added). a recommendation. For example, IRAs SHUTTERSTOCK

rm the same level of compensation as they usually offer a broader range of investment / received under the plan (or less), a rollover The FAB is also binding on the IRS, options than plans, unless the plan has a

recommendation made by a duciary advisor meaning that excise taxes for prohibited brokerage window. But in applying this ICEDMOCHA

50 NAPA NET THE MAGAZINE

NNTM_SUM18_48-51_Feature03_Rollovers.indd 50 6/18/18 11:16 AM “THE SAFE APPROACH IS TO FOLLOW THE GUIDANCE IN THE ADVISORY OPINION UNTIL DIFFERENT GUIDANCE IS ISSUED.”

factor, an advisor should consider whether factors may be relevant in many cases. For interest” and other impartial conduct the investor actually would bene t example, say the investor needs to take standards will protect advisors from signi cantly from access to investments periodic withdrawals, but the plan doesn’t DOL enforcement and excise taxes for that aren’t available under the plan. If not, offer partial withdrawals, or does but prohibited transactions. We’ve noted this factor may not favor the IRA. charges check-writing fees. Assuming that’s that this should also help ensure that The preamble of the BIC Exemption not the case for the IRA, the additional the advisor’s ERISA duciary duties also encouraged the examination of those “distribution exibility” may be a factor have been satis ed, so as to avoid additional factors set forth in FINRA that favors the rollover. breach claims. And because “best Regulatory Notice 13-45, which is interest” is a similar (even if somewhat discussed below. SEC higher) standard than “suitability” or In 2015, the SEC launched its Retirement- “reasonable basis,” it seems safe to OTHER STANDARDS Targeted Industry Reviews and presume that satisfying “best interest” FINRA and SEC conduct standards, Examinations (“ReTIRE”) initiative. SEC should preclude violations of FINRA and as applicable, still apply separately to materials on ReTIRE explain that an IRA SEC rules as well. advisors whether or not they are ERISA is a “type of account” which any advisor This is the approach we recommend. duciaries. subject to SEC registration must have a An advisor who gathers and analyzes the “reasonable basis” to recommend, citing necessary information, taking into account FINRA to Notice 13-45 as an example of the rules all the factors above (and others that are In Notice 13-45, FINRA explained that may attach to such recommendations. relevant), and recommends IRA rollovers that IRA rollover recommendations are only where they are in the investor’s best typically securities recommendations TYING IT ALL TOGETHER interest, will be most protected against subject to FINRA rules — and thus must Advisors should consider whether they liability from all sides. be “suitable” for the investor. It then will be treated as ERISA duciaries when As a nal note, we should point delineates seven factors that brokers recommending IRA rollovers, due to out that all advisors who recommend should take into account. The rst three — “existing” plan duciary status. IRA rollovers, whether or not as ERISA investment options, fees and expenses, and If the answer is no, then complying duciaries, need to maintain records services — overlap the speci cally required with FINRA and/or SEC rules, as and document the reasons for those “best interest” factors. The other four applicable, may be all that is necessary. recommendations, in each case in factors are: Despite many similarities, FINRA accordance with all applicable standards. • penalty-free withdrawals (for “suitability” and the SEC “reasonable In the event of a dispute or regulatory investors between ages 55 and 59½, basis” standards may arguably be examination, an advisor’s process is only which are available from plans but somewhat lower than “best interest.” as good as can be shown. N not IRAs); However, this is largely a distinction • creditor protections (which may be without a difference. After all, an advisor » Fred Reish is a partner in the Drinker Biddle more limited for IRAs); needs to gather the relevant information & Reath law rm. He chairs the rm’s Financial • required minimum distributions and analyze it, and consider the investor’s Services ERISA Team and co-chairs the Best Interest (which can be deferred under plans, personal circumstances, to make a Compliance Team. but not IRAs, for age 70½ investors “suitable” recommendation of an IRA who remain employed); and rollover, or form a “reasonable basis” for » Joshua Waldbeser is a partner in the Drinker Biddle • employer stock (favorable tax such a recommendation, anyway. & Reath law rm. He is part of the rm’s Financial treatment vs. diversi cation). What if the answer is yes? We’ve Services ERISA Team and is a member of the rm’s This is not an exhaustive list and other explored why adherence to the “best Best Interest Compliance Team.

1For simplicity, we use the term “advisor” to refer to broker-dealer registered representatives and individual adviser representatives of RIA rms alike. 2As of the current date, the 5th Circuit’s order ocially vacating the duciary rule has not yet been issued, but we are writing this article as if it has (and presuming that it will). 3The DOL has indicated that benchmarks and “general” industry data may be relied upon in some cases where the participant refuses to provide plan-speci c information.

SUMMER 2018 • NAPA-NET.ORG 51

NNTM_SUM18_48-51_Feature03_Rollovers.indd 51 6/20/18 2:41 PM FEATURE

‘MULTI’ FACETED

2018 Top DC Advisor Multi-Ofﬁce Firms

By Nevin E. Adams, JD

rom the day we launched our call for Top DC Advisor Teams, there has been an interest in a related compilation – one that captures the de ned contribution (DC) assets of an entire rm, or a multi-of ce arrangement. During our call for Top DC Advisor Teams last year, a number of rms provided this information – but the focus of that initial list was on individual teams. FThe list is based on self-reported DC assets under advisement (AUA) as of Dec. 31, 2017, for the organizations that submitted data. Firms listed had to have more than one of ce/physical location to be included. Additionally, for this inaugural list, we decided that every multi-of ce rm should have in excess of $1 billion in DC assets under

advisement. COM . Sure, we know it’s not just about the numbers – but the reality is that advisors are having a huge impact every single day, not only on the quality of retirement plan advice, but in building a more nancially secure retirement for millions of Americans. SHUTTERSTOCK

We appreciate the commitment and hard work of the teams acknowledged – and are proud to have the / opportunity to share it here. In future publications, this multi-of ce listing will accompany that of the individual teams. If your rm was not

included, and you’d like to be considered for future lists, please email me at [email protected]. N PUSHISH IMAGES

52 NAPA NET THE MAGAZINE

NNTM_SUM18_52-53_Feature04_AdvisorFirms.indd 52 6/18/18 11:21 AM *Total asset value of *Total number of *Total participants covered Number of Advisor Firm City / State Website the defined contribution defined contribution by the defined contribution individual offices plans supported plans supported plans supported RPAG Aliso Viejo, CA http://www.rpag.com 450 $382,598,260,333 36,872 4,070,194

GRP Advisor Alliance Carlsbad, CA http://www.grpaa.com 120 $220,000,000,000 25,000 3,200,000 CAPTRUST Raleigh, NC http://www.captrustadvisors.com 29 $203,720,207,284 2,078 4,600,000 NFP Aliso Viejo, CA http://nfp.com 25 $135,000,000,000 1,391 1,400,000 Morgan Stanley Purchase, NY http://Morganstanley.com 187 $129,000,000,000 23,000 3,200,000

UBS Weehawken, NJ https://www.ubs.com/rpcs 297 (U.S.) $112,119,740,791 12,745 2,100,000 Cammack Retirement Group New York, NY http://www.cammackretirement.com 3 $104,000,000,000 315 900,000 Wells Fargo Advisors St. Louis, MO http://wellsfargoadvisors.com N/A $85,161,145,056 47,012 N/A SageView Advisory Group Irvine, CA http://www.sageviewadvisory.com 22 $84,025,000,000 1,221 550,000 Independent Financial Tampa, FL http://www.ifpartners.com 97 $41,440,000,000 1,640 400,000 Partners Cetera Financial Group El Segundo, CA http://www.cetera.com N/A $28,500,000,000 13,750 unknown Commonwealth Financial Waltham, MA http://www.commonwealth.com 902 $16,763,988,814 5,945 158,635 Network Centurion Group, LLC Plymouth Meeting, PA http://www.centuriongroupllc.com 3 $16,200,000,000 180 545,000 CBIZ Retirement Plan Cleveland, OH http://www.cbiz.com/retirement 16 $14,752,180,591 959 252,500 Services Marsh & McLennan Agency Boston, MA http://www.mma-ne.com 11 $13,300,000,000 892 330,000 Retirement Services Lockton Retirement Services, Washington, DC https://www.lockton.com/retirement- 5 $13,000,000,000 171 N/A Northeast overview Sheridan Road Financial Northbrook, IL http://sheridanroad.com 9 $12,260,227,301 277 400,000 Newport Capital Group Red Bank, NJ http://www.newportcapitalgroup.com 6 $10,800,000,000 126 127,785 Resources Investment Overland Park, KS http://www.riaadvisor.com 22 $10,800,000,000 1,031 120,000 Advisors Institutional Investment Bloomfield Hills, MI http://www.iic-usa.com 3 $10,600,000,000 43 122,000 Consulting Compass Financial Partners Greensboro, NC http://www.CompassFP.com 4 $8,900,000,000 142 98,000 Blue Prairie Group Chicago, IL http://www.blueprairiegroup.com 7 $7,989,000,000 96 100,000 PFE Advisors, Inc. Southborough, MA http://pfegroup.com 2 $7,800,000,000 158 150,000 Qualified Plan Advisors Overland Park, KS http://qualifiedplanadvisors.com 11 $7,800,000,000 410 70,900 Strategic Retirement Shorewood, IL http://www.srpretire.com 15 $7,000,000,000 600 100,000 Partners MRP Denver, CO http://www.MRPretire.com 2 $5,200,000,000 209 58,000 intellicents Albert Lea, MN http://intellicents.com 3 $2,994,825,000 200 37,500 Cafaro Greenleaf Red Bank, NJ http://www.CafaroGreenleaf.com 5 $2,470,000,000 130 35,000 Bukaty Companies Overland Park, KS http://www.bukatyfs.com 5 $2,250,000,000 305 50,000 Financial Services Plan Sponsor Consultants Alpharetta, GA http://www.plansponsorconsultants.com 5 $1,650,000,000 164 43,500 The Trust Company Knoxville, TN http://www.thetrust.com 3 $1,351,000,000 189 25,377 of Tennessee

*as of 12/31/17

SUMMER 2018 • NAPA-NET.ORG 53

NNTM_SUM18_52-53_Feature04_AdvisorFirms.indd 53 6/18/18 11:21 AM INSIDE THE PLAN SPONSOR’S MIND e ʻ’ an

Are all of your clients pro table and knowledgeable? Do you enjoy working with all of them? BY STEFF CHALK

they need to be better educated about their duciary duties and responsibilities. Plan advisors, recordkeepers and investment managers should be quietly rejoicing about this. The message is nally being heard by those who need to hear it: the individuals who are responsible for outcomes at companies that sponsor a retirement plan.

Down the Road Responsible plan duciaries are becoming discerning purchasers of retirement-based products and services. So seize the moment. Know your customer — not in the traditional sense, but as an offensive strategy. Know your customer to protect and grow your business and client base. A good practice would be to identify clients that fall into these three problem areas: • not pro table for you • not knowledgeable plan duciaries s industry practitioners and • The “90-10-90” Formula — In his • you do not enjoy working with them retirement plan specialists we book, Save More Tomorrow, Shlomo Most experienced advisors can easily maintain more than a passing Benartzi suggested that 90% of identify 10% of their client base that falls interest in seeing that plan eligible employees should be saving squarely into one of these areas. Once you Aparticipants are collectively progressing for retirement; 10% is the low-water have identi ed that 10%, immediately toward achieving better outcomes. mark for what participants should raise the fee to those clients by 10%. The Whether we help 85% of the be deferring; and 90% of savers logic here is simple. First, if you don’t workforce at a multinational company should be utilizing a managed account enjoy working with them or the accounts get retirement ready, or we help a local structure for investments. Thus, “90- are not pro table, then losing them may company’s third-shift workers feel 10-90” became a goal for achieving result in a net gain. And second, if a client comfortable with paying off credit card plan success. Advisors and wholesalers is not knowledgeable, then add duciary debt before saving for retirement, we have been extolling its virtues to education to your business model for that are all in this together. Plan advisors, clients and prospects ever since. client to justify the 10% fee increase. wholesalers, recordkeepers and broker- Repeat this process every 90 days — or dealers — we are all working for What’s Immediately Ahead? until all your clients have made the transition Americans’ retirement. In some cases, retirement plan duciaries are to being pro table, knowledgeable clients aware of what they want and need. In other you enjoy working with. Our Collective Rearview Mirror cases, they are not. Based upon anecdotal This strategy can become your own As we barrel down the road of “everyone’s experience, I estimate less than 50% of plan “10-10-90” plan for success in your COM

future retirement,” we can look back at a duciaries are knowledgeable. The silver practice. Don’t let the race to the bottom . long list of experiences that have carried us lining in that number is that today, nearly drive your business. Treat your business as to this point. To name just a couple: 100% of plan duciaries are aware that they though it is your own! N

• Auto-enrollment — Without this have work to do. They have been awakened SHUTTERSTOCK ground-breaking innovation, the to their own knowledge gap. » Steff C. Chalk is the Executive Director of The Retirement / U.S. workforce would be much less They may not know exactly what Advisor University (TRAU), The Plan Sponsor University

prepared for retirement. they need to learn, but they are aware that (TPSU) and 401kTV. LIGHTSPRING

54 NAPA NET THE MAGAZINE

NNTM_SUM18_54_InsidePlanSponsorsMind.indd 54 6/18/18 11:22 AM CARE ABOUT YOU AND YOUR PRACTICE

More than 225 rms have stepped up with their check books, business intelligence, and “can FIRM PARTNERS do” attitude to support NAPA, the only organization that educates and advocates speci cally for plan advisors like you. NAPA is grateful for its Firm Partners. We hope you appreciate them too.

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FELA | LifeCents MCF Advisors RPSS ADP Retirement Services Ferenczy Bene ts Law Center LLP Mesirow Financial SageView Advisory Group Advisor Group 360 MFS Investment Management Company Saltzman Associates, LLC Alerus Retirement and Bene ts Fidelity Investments Milliman Schlosser, Fleming, & Associates LTD Alger Fiduciary Advisors, LLC Morgan Stanley Schwartz Investment Counsel, Inc. Alliance Bene t Group National Fiduciary Benchmarks Morley Capital Management, Inc. Securian Retirement Allianz Global Investors Distributors Fiduciary Consulting Group, Inc. MPI (Markov Processes International) SetAway, LLC Altegris Investments Fiduciary Retirement Advisory Group, LLC Multnomah Group, Inc. 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Aspire Financial Services Fulcrum Partners, LLC North American KTRADE Alliance Strategic Insight Aurum Wealth Management Group Galliard Capital Management NovaPoint Capital, LLC StratWealth AXA Equitable Green Retirement, Inc. NPPG Fiduciary Services, LLC Streamline Partners BAM Advisor Services Global Retirement Partners Nuveen Investments Summit Bene t Solutions, Inc. Bank of America Merrill Lynch GoldStar Trust Company OneAmerica Sway Research, LLC Beltz Ianni & Associates, LLC Gordon Asset Management, LLC OppenheimerFunds T. Rowe Price Bene tWorks, Inc. Gross Strategic Marketing PAi TAG Resources, LLC Bene t Trust Company GROUPIRA Paychex, Inc. Taylor Wealth Solutions Benetech, Inc. GuidedChoice Penchecks, Inc. The Pangburn Group BerganKDV Wealth Management, LLC Hartford Funds Penn Investment Advisors The Standard BlackRock HealthyCapital Pension Assurance, LLP Thornburg Investment Management Blue Prairie Group HighTower Advisors PensionPro TIAA BlueStar Retirement Services Howard Capital Management, Inc. Pension Resource Institute, LLC Titan Retirement Advisors, LLC BMO Retirement Services HSA Bank Pentegra Retirement Services Touchstone Retirement Group BPAS ICMA-RC-Vantagepoint Funds PIMCO Transamerica BridgePoint Group, LLC Independent Financial Partners Pinnacle Trust TRAU Burrmont Compliance Labs LLC Insight Financial Partner, LLC Plancheckr Trinity Advisors Cafaro Greenleaf Institutional Investment Consulting PlanPro Troutman & Associates, Inc. Cambridge Investment Research, Inc. Integrated Retirement Initiatives Plexus Financial Services, LLC Trutina Financial Cannon Capital Management Inc. Invesco Precept Advisory Group Tsukazaki & Associates, LLC CAPTRUST Financial Advisors IRON Financial PriceKubecka Twelve Points Retirement Advisors CBC Retirement Partners Ivy Investments Prime Capital and Quali ed Plan Advisors Two West Advisors CBIZ Financial Solutions, Inc. J.P. Morgan Asset Management Principal Financial Group Ubiquity Retirement + Savings CBS Funding, Inc. Janus Henderson Investors Principled Advisors UBS Financial Services Center for Fiduciary Management / FiRM John Hancock Investments ProCourse Fiduciary Advisors, LLC Uni ed Trust Company Cetera Fianancial Group John Hancock Retirement Plan Services Procyon Partners, LLC Up Capital Management, Inc. CG Financial Services Judy Diamond Associates (ALM) Prudential Vanguard Charles Schwab & Co. July Business Services Questis Vestwell CircleBlack Karp Capital Management Raymond James Victory Capital Clearview Advisory Kestra Financial RBF Capital Management Vita Planning Group CLS Partners Retirement Services LAMCO Advisory Services RCM&D VOYA Financial Cohen & Steers Capital Management Latus Group, Ltd. Redstar Advisors vWise, Inc. Colonial Lazard Asset Management Reilly Financial Advisors Wells Fargo Advisors Columbia Threadneedle Investments LeafHouse Financial Advisors Resources Investment Advisors Wilmington Trust Commonwealth Financial Network Legacy Retirement Solutions, LLC Responsible Asset Management Wilshire Associates Compass Financial Partners Legg Mason & Co. LLC Retire Ready Solutions Wipi Hewins Investment Advisors, LLC CoSource Financial Group, LLC Lincoln Financial Group Retirement Clearinghouse, LLC CUNA Mutual Retirement Solutions Lockton Financial Partners, LLC Retirement Fund Management *as of June 21, 2018 Deane Retirement Strategies, Inc. LPL Financial Retirement Leadership Forum Deutsche Asset Management M Financial Group Retirement Learning Center Dietrich & Associates, Inc Macquarie Investment Management Retirement Plan Advisors Ltd

Shouldn’t your rm be on this list and enjoy the bene ts of NAPA Firm Partnership?

To learn more contact [email protected] www.napa-net.org

NAPA_FP_2018_Summer copy.indd 1 6/21/18 11:22 AM INSIDE THE LAW

Our Baskin- BY DAVID N. LEVINE Robbins Industry 31 avors of duciary for all!

ell, here we go again. After years and years spent on the duciary rule, we’re back to the Wstart. It truly is Groundhog Day. At this point, we can all make guesses, but I’m going to refrain from suggesting where the Department of Labor, Securities and Exchange Commission, state legislatures, or other self-regulatory bodies are going to land with their different avors of a duciary rule. Instead, for now we’ll focus on a few key considerations plan advisors and their clients now face in light of our new unknown duciary landscape. First, regardless of whether you grimaced or rejoiced at the 5th Circuit’s decision vacating the DOL’s duciary rule, as an advisor, you now face a key decision tree — what services was I providing as a duciary? Are some or all of these services still duciary services? Do I still want to say I’m a duciary for some or all of these services? Just as under the DOL duciary rule you had to segment each activity, 2000s, many registered investment advisors advice services as ERISA duciaries. Others duciary rule de-implementation works the made names for themselves as acting as decided not to provide these services. Now same way. It doesn’t need to be too hard or duciaries for their clients. The market some who went into one or both of these require that much effort, but it isn’t always then adapted with a wide range of service areas are revising their service models, with as easy as waving a magic wand! providers calling themselves duciaries. some providers ceasing their duciary status Second, beyond the basic decision They created a world in which what it and others maintaining duciary status for tree, there is a business and marketing meant to be a duciary varied widely some (but maybe not all) of these services. An side to consider. How have you positioned among service providers. This same world advisor’s insight and guidance on what these yourself with your clients? Some would is likely to be our reality again for the changes mean, and how they are disclosed, is argue that the DOL duciary rule foreseeable future; advisors will need to be more essential than ever. permanently transformed the market, able to clearly explain how the providers to These four considerations are just the while others might not. Regardless, many their clients are or are not duciaries — as tip of the iceberg. With the 31 avors — and advisors have now told their plan sponsor well as what that term means in each case. more — of what it means to be a duciary

clients that they are duciaries. If you Fourth, while the DOL duciary rule oating around, advisors need to evaluate COM . decide that you will apply a different triggered many business changes, two services their own practices as well as continue to standard of care to one or more services received signi cant attention: in-plan advice re ne their services to their clients in this constantly changing world. N going forward, how do you explain this and distribution advice. Some advisors and SHUTTERSTOCK change to your clients? other service providers saw the change in the / Third, how do you avoid confusion duciary rule as an opportunity to begin or » David N. Levine is a principal with the Groom Law Group,

going forward? In the late 1990s and early enhance their in-plan advice and distribution Chartered, in Washington, DC. ALPHASPIRIT

56 NAPA NET THE MAGAZINE

NNTM_SUM18_56_InsideLaw.indd 56 6/18/18 11:27 AM INSIDE THE NUMBERS Crisis ʻManagement’

I shudder when I hear an industry leader or advisor proclaim that there is a retirement crisis… BY NEVIN E. ADAMS, JD

arely a week goes by that a Security. However, a study based on IRS data adjusted basis. Even at an 80% replacement headline, survey or academic found that only 18% of retiree households rate, 67% of the lowest-income quartile paper doesn’t proclaim the are heavily dependent on Social Security, would still meet that threshold — and reality of a retirement crisis with and just one in eight retirees receive 90% or that’s making no assumptions about the Rthe certainty generally reserved for topics more of their income from Social Security. positive impact of plan design features like the existence of gravity, or the notion Don’t get me wrong — Social Security is like automatic enrollment and annual that the sun will rise in the east. clearly a vital and essential component of contribution acceleration. And certainly based on the data cited, our nation’s retirement security — but the Not that there isn’t plenty to worry there would seem to be a compelling case IRS data indicates that, for most, it isn’t a about; reports of individuals who claim that trouble lies ahead for many. That primary source at present. to have no money set aside for nancial said — as was pointed out by Andrew Pundits have long worried that retirees emergencies, the sheer number of workers Biggs at the recent Plan Sponsor Council wouldn’t have accumulated enough to entering their career saddled with huge of America conference — the reality is live on in retirement, but data suggests amounts of college debt, the enormous that good, reliable data is hard to come that today’s retirees are actually in pretty percentage of working Americans who by. Indeed, many of the reports cited in good shape. In addition to the IRS data (still) don’t have access to a retirement those headlines rely on what you would expect to be a reliable source; the Census Bureau’s Current Population Survey, or CPS. Unfortunately, that reliable source Responsible plan duciaries are becoming turns out to be not-quite-so-reliable. It suffers from relying on what people discerning purchasers of retirement-based tell the survey takers, but perhaps more signi cantly, Biggs, resident scholar at the products and services. So seize the moment.” American Enterprise Institute, pointed out that the survey only counts as income in retirement funds that are paid regularly — like a pension. “Irregular” withdrawals cited above, that sentiment is borne out plan at work (though not as enormous as from retirement accounts — like IRAs and by any number of surveys (perhaps most some claim)… 401(k)s — aren’t included. notably the Retirement Con dence Survey, That said, I shudder every time I hear In fact, when you compare what published by the nonpartisan Employee an industry leader or advisor stand up in retirees report to the IRS with what they Bene t Research Institute (EBRI) and front of an audience and proclaim that report to the Census Bureau, only 58% Greenwald Associates) that continue there is a retirement crisis — because, of private retirement bene ts are picked to nd that those already in retirement however well-intentioned — they are up, according to Biggs. Now, who do you express a good deal more con dence about almost certainly providing “aid and suppose gets a more accurate read; the IRS their nancial prospects than those yet comfort” to those who would like to do or the Census Bureau? And yet, the CPS to cross that threshold. And certainly, the away with the current private system as a data serves as the basis for a huge swath of objective data available to us suggests that failure, not a work in process. academic research on retirement savings. today’s retirees are better off than previous What seems likely is that at some generations, though their retirement — point in the future, some will run short Social ‘Security’ and potential health issues — may at some of money in retirement, though they may Biggs noted that IRS data also draws into point take a toll. very well be able to replicate a respectable question some of the “common wisdom” Still, in 2014, EBRI found that current portion of their pre-retirement income on things such as dependence on Social levels of Social Security bene ts, coupled levels, certainly if the support of Social Security. Consider that the Social Security with at least 30 years of 401(k) savings Security is maintained at current levels. Administration — who arguably has “skin” eligibility, could provide most workers — However, what seems even more in the game — claims that a third of retirees between 83% and 86% of them, in fact likely is that those who do run short are heavily dependent — to the tune of — with an annual income of at least 60% will be those who didn’t have access to a 90% or more of their income — on Social of their preretirement pay on an in ation- retirement plan at work. N

SUMMER 2018 • NAPA-NET.ORG 57

NNTM_SUM18_57_InsideNumbers.indd 57 6/18/18 11:28 AM Case(s) in Point Excessive fee litigation comes from a new direction, another one targets plan advisor, Wildcats win 403(b) suit, and custodian pushes back in Vantage Bene ts suit.

New excessive fee litigators emerge SUIT ROUTE

new excessive fee suit has been led — this time against a A hospital’s retirement plan — and from a different direction. The suit (Disselkamp v. Norton Healthcare, Inc., W.D. Ky., No. 3:18-cv-00048, complaint led 1/22/18) was led in the U.S. District Court for the Western District of Kentucky by participants in the Norton Healthcare Retirement Plan. The suit, which seeks class action status to represent more than 13,000 participants in the hospital’s $714 million 403(b) retirement plan, accuses the plan’s duciaries of committing what the defendants claim is “one of the most common and well-known examples of an imprudent investment” — purchasing a more expensive share class of a mutual fund when a less expensive share class is available. “A prudent duciary does not make such an elementary mistake,” the plaintiffs state. Indeed, unlike other suits that argued that there were less expensive fund families, or less expensive fund types (such as CITs), or even less expensive types of funds (say, passively managed rather than active), most of the 38-page complaint is comprised of comparisons of the cost of the share class(es) of the various funds in the plan side-by-side with alternate and less expensive share classes of the very same funds that ostensibly were available to the plan. in employment, consumer and personal injury disputes. The other All told, the plaintiffs claim that, by virtue of having chosen these three law rms, Tomlinson Law, James White Firm and Johnston share classes, plan participants paid “unnecessary, excessive fees in Law Firm, are based in Birmingham, AL. The lawsuit against the amount of approximately two million dollars.” Moreover, they Norton is also the rst class action under ERISA led by each of the claim that not only did participants lose the amounts “unnecessarily three law rms, according to Bloomberg Law dockets.

wasted on fees, but also the investment returns they would have They are not the rst rms that appear to be cutting their COM . earned had these amounts remained invested in the Plan” — a ERISA litigation teeth in this line. Last year Franklin D. Azar & variance that, according to plaintiffs, over a six-year period, resulted Associates P.C., which held itself out as a personal injury law rm in an additional $500,000 loss to the plan. that specializes in motor vehicle accidents, defective products and SHUTTERSTOCK

But perhaps what is most interesting about this particular slip-and-fall accidents, led a couple of cases which, while smaller / litigation is that the plaintiffs are represented by counsel that doesn’t than the multibillion-dollar plans that have characterized most appear to have a track record in ERISA litigation. According to plaintiffs over the past decade, are nonetheless constitute several Bloomberg BNA, Bishop Korus Friend is a Kentucky-based general hundred thousand dollars in plan assets.

practice law rm that, according to its website, represents clients — Nevin E. Adams, JD EVERYTHING POSSIBLE

58 NAPA NET THE MAGAZINE

NNTM_SUM18_58-61_CasesInPoint.indd 58 6/18/18 11:30 AM Another 403(b) university plan excessive fee suit has its day in court WILDCATS WIN

he suit — led against Northwestern TUniversity in 2016 by the law rm of Schlichter Bogard & Denton — had argued that Northwestern “eliminated hundreds of mutual funds provided to Plan participants and selected a tiered structure comprised of a limited core set of 32 investment options,” including ve tiers: one a TDF tier, the second ve index funds, the third consisting of 26 actively managed mutual funds, an insurance separate account and an SDBA. However, the suit notes that Northwestern continued to contract with two separate recordkeepers (TIAA-CREF and Fidelity) for the retirement plan and only consolidated the Voluntary Savings Plan to one recordkeeper (TIAA-CREF) in late 2012. The suit also took issue — as most of these suits do — with the alleged inability of the plan duciaries to negotiate a better deal based on its status as a “mega” plan “constitute a description of plaintiffs’ “a at-fee structure might be bene cial for (the Retirement Plan had $2.34 billion in opinions both on ERISA law and on a participants with the largest balances, but, net assets and 21,622 participants with proper long-term investment strategy for younger employees and others with account balances, while at the same point for average people who lack the time to small investment balances, a capitation fee in time the Voluntary Savings Plan had select either individual stocks or actively- could work out to more, per dollar under $529.8 million in net assets and 12,293 managed mutual funds.” management…” Not that those arguments participants with account balances), for wound up being persuasive here, because presenting participants with the “virtually ‘Paternalistic’ Theories Judge Alonso noted that “in any case, impossible burden” of deciding where to “Nothing in ERISA requires employers the participants had options to keep the invest their money, and for including active to establish employee bene ts plans. expense ratios (and, thus, record-keeping fund choices when passive alternatives Nor does ERISA mandate what kinds expenses) low.” were available. of bene ts employers must provide if they choose to have such a plan,” Alonso ‘Control’ Voice ‘Massive’ Complaint wrote, moving on to invoke the U.S. All in all, Judge Alonso noted that “the The decision, rendered by Judge Jorge L. Supreme Court decision in Varity Corp. amount of fees paid were within the Alonso in the U.S. District Court for the v. Howe. Alonso went on to point out control of participants, because they could Northern District of Illinois (Divane v. that “Ultimately, plaintiff’s theory is choose in which funds to invest the money Northwestern Univ., 2018 BL 186065, paternalistic, but ERISA is not.” in their account.” N.D. Ill., No. 1:16-cv-08157, order Alonso even went so far as to contest Judge Alonso granted defendants’ granting defendants’ motion to dismiss the notion that a mega plan should be able motion to dismiss, denied plaintiffs’

COM 5/25/18) took issue with the plaintiffs’ case to command a better price, citing Loomis motion for leave to amend, and their . right from the start, commenting on the v. Exelon Corp., where the court opined motion for leave to le under seal. All “massive” size of the plaintiffs’ amended “…it isn’t clear to us why mutual funds other pending motions were denied as complaint and proposed second amended would offer lower prices just because moot, and he dismissed the case — with SHUTTERSTOCK / complaint (taking the time to count not participants in this Plan have pension prejudice. only the pages, but the paragraphs in wealth that in the aggregate exceeds $1 This was the second of the 403(b) each), quickly dismissing the quantity as billion”). That court also pushed back on university excessive fee suits to go to trial PHOTOGRAPHY “not speci c to the defendants and the the presumption that a per-participant — and the second in which the university BRADY

plans in this case.” Rather, Judge Alonso charge was preferable to the asset-based defendants prevailed.

PAUL said that most of the plaintiffs’ allegations recordkeeping fee approach, when it noted — Nevin E. Adams, JD

SUMMER 2018 • NAPA-NET.ORG 59

NNTM_SUM18_58-61_CasesInPoint.indd 59 6/18/18 11:30 AM CASE(S) IN POINT

New ground(s) emerge in NYU excessive fee suit SUIT ‘TIES’

n amended claim in an excessive fee Enter January’s new, amended “use of Morningstar weighted averages is an A litigation treads some new ground complaint — 143 pages long — in the U.S. inappropriate benchmark for evaluating fees — including naming the plan’s investment District Court for the Southern District of charged by the investment options offered advisor as a defendant. New York, with new ground(s) that includes in the Plans because these averages include New York University was the target naming as a defendant Cammack LaRhette, mostly retail share classes of funds that of one of the rst of the university 403(b) which, according to the plaintiffs, has served carry far higher fees than those appropriate excessive suits led in August 2016, and as the plans’ investment advisor since 2009. for inclusion in massive jumbo plans, like representing the plaintiffs then (and now) was “As a result of Cammack’s imprudent the NYU Plans.” They go on to note that the law rm of Schlichter, Bogard & Denton. investment advice failing to recommend the using “the Morningstar blended average to A year ago, the NYU duciaries were removal of the imprudent TIAA Real Estate evaluate the appropriateness of the fees in able to persuade the court to reject some and CREF Stock Accounts despite their high the Plans would produce distorted results allegations, notably that there were too many fees and histories of abysmal performance, that give the incorrect appearance that high- investment options in the plan. But claims the Plans suffered tremendous losses,” fee funds in the Plans had reasonable fees regarding excessive recordkeeping fees and according to the suit. compared to industry averages that fail to failure to prudently monitor plan investment account for the massive size and bargaining COM options by continuing to offer funds with high Retail ‘Fail’? power of the Plans.” . fees and poor performance remained. Then The plaintiffs note that since jumbo plans While the excessive fee suits have tended in November came a new ling, expanded to (such as NYU’s) “can obtain much lower fees to treat the defendant duciaries as a block,

include the university’s hospital system, school for investment management, benchmarking this one took pains to outline actions and SHUTTERSTOCK / of medicine, the retirement plan committee fees in NYU’s Plans to small plans or retail comments attributed to Margaret Meagher,

and 21 named individuals. fees is wholly inappropriate,” and that the co-chair of the plan’s retirement committee. PATHDOC

60 NAPA NET THE MAGAZINE

NNTM_SUM18_58-61_CasesInPoint.indd 60 6/18/18 11:30 AM CASE(S) IN POINT

The suit says Meagher “conceded that the management products to participants plan reviews,” and that “had Defendants Retirement Plan Committee, and all of its as they neared retirement and before conducted such a review of the Plans, members, accepted Cammack’s use of this retirement,” and that the plan duciaries Defendants would not have allowed admittedly awed benchmark for years “allowed TIAA to market and sell its the Plans to continue to pay excessive (continuing through the present) and never services and investment products outside administrative fees; would not have once questioned why Cammack used this the Plans, bene tting TIAA enormously.” maintained an inef cient multi- inappropriate benchmark. Indeed, she recordkeeper structure; would not have admitted that not a single Committee member Familiar ‘Grounds’ continued to include an excessive number ever questioned the use of these Morningstar There were, of course, many familiar of investment options in the Plans, averages, took issue with their use, or even allegations: that “jumbo” plans have including duplicative funds in numerous brought it up at a Committee meeting.” “tremendous economies of scale investment styles and higher-cost retail Bearing in mind that this is only one for purposes of recordkeeping and share classes for which an identical lower- side of the story, despite what plaintiffs administrative fees” that were not cost version of the same fund was available; described as “their long histories of leveraged here, that asset-based fees and would not have retained investment dramatic underperformance and exorbitant “have nothing to do with” recordkeeping options in the Plans despite a sustained fees detailed below, Cammack never services, and that “a at price based track record of underperformance.” recommended removing the CREF Stock or on the number of participants in The plaintiffs also alleged that “a TIAA Real Estate Accounts.” the plan ensures that the amount of reasonable annual recordkeeping fee for the Plans would be no more than $840,000 in the aggregate for both Plans combined (a rate of no more than approximately $35 for each participant in Fiduciaries locked their plans into an the Plans per year) using a recordkeeper who does not sell investment products arrangement in which certain investments could and does not bene t as TIAA did from its position as a recordkeeper in selling not be removed from the plan.” lucrative retirement products outside of the Plans to the Plans’ participants.” The complaint is, of course, only one side of the story, and here makes a number of charges and allegations that may well be disputed or rejected at trial. However, this RFP Route compensation is tied to the actual services case does make a number of extraordinarily The suit also noted that “prudent provided,” challenges the use of multiple detailed claims about what defendants have duciaries conduct an RFP every three recordkeepers (in this case TIAA-CREF not only done, but said on the record. It years in order to ensure their plans’ and Vanguard), and touts the advantages will be interesting to see how this case – recordkeeping fees are reasonable,” of open architecture (in offering options particularly in view of the expanding and but that “the NYU Defendants waited beyond proprietary provider funds), while evolving claims — develops. approximately seven years, or not until noting that “…among the thousands of Oh, and if you’re having trouble late 2016, to conduct another RFP after mutual funds in the market, not a single keeping track of these suits, it’s no wonder. the one conducted in 2009,” and that that fund other than the proprietary funds of The list now includes plans at Cornell one “…was executed only after the ling the recordkeepers (27 TIAA-CREF and 74 University, Northwestern University, of a related lawsuit in this District against Vanguard) was allowed in the Plans,” and Columbia University and the University NYU by these same Plaintiffs challenging that “by using TIAA-CREF, duciaries of Southern California, as well as Yale. the duciaries’ management of the Plans.” locked their plans into an arrangement Meanwhile, some of the earlier suits are Another unique allegation in this in which certain investments could not just getting to hearings on motions to litigation charges that TIAA “used its be removed from the plan — even if the dismiss, speci cally Emory University and position as recordkeeper in the NYU Plans funds were not prudent investments, in Duke University — both of which are to obtain access to participants, learning violation of prudent accepted duciary currently proceeding to trial — and the their ages, length of employment, time until practices.” University of Pennsylvania, which recently retirement age, the size of their accounts, The plaintiffs alleged that the “use of prevailed in a similar case. Another — and choices of investments, and used multiple recordkeepers and proprietary involving Princeton University’s 403(b) that information for its bene t to market funds required by the recordkeepers plans — is on hold awaiting an appeal in and sell lucrative investment products, to be included in the Plans” illustrated the University of Pennsylvania litigation. insurance, 529 plans, IRAs, and wealth their failure to conduct “comprehensive — Nevin E. Adams, JD

SUMMER 2018 • NAPA-NET.ORG 61

NNTM_SUM18_58-61_CasesInPoint.indd 61 6/18/18 11:30 AM POLLING PLACES

Time for a Digital Disclosure Default? In a recent NAPA Net poll, readers shared their answers. By Nevin E. Adams, JD

ove ’em or hate ’em, retirement Participant ‘Accounts’ out that meet the wired-at-work standards plan disclosures are a reality — So, what do readers think that “regular” for clients that qualify. Removing the need but could they be “better,” and participants do with the disclosures? Well, for paper disclosures for most clients.” could they be just as effective (and let’s just say it’s a lot less ambiguous. Lperhaps more so) if they weren’t paper? Nearly three-quarters (73%) say they Default De ned? It’s a topic of interest — retirement throw them away, and another quarter While participants can opt to receive many plans are a complicated business — say that “not knowing what they are, they of the currently mandated disclosures in and a process that adds a lot of cost to throw them away.” The rest — and bear electronic form, the default is paper — and the process. At the same time, it’s not in mind, we’re only talking about 2% so, we asked readers if they thought the altogether clear that the current process — said they throw them away without default should be changed. is effective, at least in terms of getting reading them. Here again — and doubtless reecting participants to read, and perhaps more Turning to the perspectives of their their sense of how those disclosures are importantly, understand these disclosures. plan sponsor clients, more than half treated now — nearly 77% of respondents (59%) said that those clients and the said the default should be changed, though 1 Personal Perspectives recordkeepers they work with comment on in 10 said it depended on the disclosure, and In early April we asked NAPA Net readers the disclosure requirements “all the time.” about 6% thought that a paper default was what they did with the disclosures they Another quarter (23.5%) said the subject appropriate. “I was going to answer ‘depends received with their accounts. A solid plurality came up “only occasionally,” and about on the disclosure,’” but I do believe the (42%) said they “throw them away,” 7% said it hasn’t come up. The rest were answer is, ‘no, a paper default is appropriate though another 18% went with “read in what amounts to an “other” category, for relevant disclosures,’” commented one them, then throw them away.” Just over a with comments like the following: reader. “The answer for the rest of the quarter (28%) said that it depended on the “It is tough for them to keep up with disclosures, like the SAR, is to discontinue disclosure, while 8% went right into their what disclosures are required, when this disclosure entirely. Other disclosures les (without being read), and the rest — they are required, and to whom they also need signi cant revisions to make them well, they said that, “without realizing what should be delivered.” easy to read and understandable.” Another they were, threw them away.” opined that “the employer should be able We then asked readers what they “They hate sending them out.” to choose the default on a plan level. As thought about the number of retirement long as all employees have regular access to plan-related disclosures, and found that “Clients comment to me, only every time company email, electronic should be ne. But while about a quarter (24%) thought there they come out, usually something along employees who do not have regular access to were too many, even more (36%) thought the lines of, ‘Do I have to do anything company email will still need paper delivery.” there were “way too many,” and roughly with this?’ or ‘Didn’t I just do this?’” 1 out of 10 thought it was “about right.” Other Comments Another quarter (26%) said it isn’t a “Many sponsors ask if they can email As we generally do, we did get a number of matter of how many, it’s “how much is in disclosures. It comes up most often interesting comments. Here’s a sampling: those disclosures (and it should be less).” when there’s a fund replacement.” “Disclosures should be allowed to “There are too many, they are not just be posted to the recordkeepers’ easy to understand and many of them do “I don’t know that I would say ‘all the websites. People don’t read them not provide useful information,” noted one time’ but it is frequent.” anyway, they tend to be too long, reader. “They need to be less wordy and Apparently it’s come up often enough and when they are read no one simple to understand,” commented another that one reader’s rm has crafted a understands them.” — a theme that would emerge later and solution: “We’ve built a proprietary system throughout the responses this week. that collects the notices from the providers “The disclosures should follow a and combines them. We’ll send the notices standard template. Depending on the

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ALEXANDER SUPERTRAMP hotlinks inthemsothatifthe person they wereelectronic, theycouldhave “I thinktheyneedtobesimpli ed. If hijacked bylegalese.” participant friendlylanguagehasbeen lengthy tobeuseful. The supposedly is admirable, theyarefartoo “While theintentionofdisclosures unread noti cations.” burden associatedwiththeseoften and streamlinedtoeaseadministrative “Disclosures needtobepareddown participant outcomes.” on costs, reducedfees, andimproved led tomoreproductivediscussions that theirplanisnot ‘free.’ This has center, makingplansponsors aware What ithasdoneisputfeesfrontand participants lookatthedisclosures. “I don’t thinkplansponsorsor one winscraziestdisclosureofall.” of theSummary Annual Report. That “Still tryingto gureoutthepurpose and, atbest, isincomplete.” recordkeeper, theinformation varies disclosures; twowithcontentanda “I haveseveralissueswiththe fostering clarityandlearning.” resources designedtoCYA insteadof tremendous wasteoftime, moneyand reading andunderstanding, thisisa ‘King’s English’and ‘bulletized’ foreasy these disclosurescanbewritteninthe everyone excepttheparticipant. Until they seemtobemoreimportant “Eventhoughdisclosuresareimportant, they couldbelinkedtomoreinfo.” reading didn’t understandaterm/etc. important. The otherproblemisthe asset allocation, whichisvastlymore detracts fromtheneedforproper analysis. And thefocusonthoseitems only twocomponentsofmutualfund and returns. As weknow, theseare the disclosureoveremphasizesfees requirement. With respecttocontent, are negativelyimpactedbythetiming concerning theplan’s investmentmenu requirement, duciarydecisions per planyear. Underthecurrent I thinkthetimingshouldbeonce third withthetimingrequirement. SUMMER 2018•NAPA-NET.ORG reader poll! in this(andevery)week’s NAPA Net participant.” to bethrownawaybytheaverageplan that itiswritteninamannercalculated running jokeIhaveabouttheSPDis came fromareaderwhonoted, “The but notsofunnyatthesametime— as well… Thanks toeveryonewhoparticipated But myfavorite—andit’s funny, how tomake relogsoutofpaper.” “YouTube hassomegreatvideoson “They aregreatforlighting res.” There weresomehumorousresponses link annually.” request paperandberemindedifthe to disclosuresuponhire, beallowedto “I thinkemployeesshouldgetalink about them?” person notintheprofessionthinks time reading, howdoyousupposethe people intheprofessionhaveahard friendly. There aresomedisclosure “Disclosures aresupposedtouser of paper.” participant havingtheoption be electronicwith, ofcourse, the there’s noreasonthe ‘default’ can’t for providers. Intoday’s dayandage, between them. Itwouldmakeiteasier identical insteadofminutedifferences for electronicdisclosureswereall “Itwouldbegreatiftherequirements and noticescanbeshared.” social mediagroupwheredocuments each participantshouldbepartofa than aphysicaladdress. Betteryet, An e-mailaddressisfareasiertotrack “Electronic makesalotmoresense. the expenseratio. Wow!” total annualoperatingexpensewas confessed thatthecommitteethought that developedthedisclosureandshe with amemberoftheDOLcommittee expense ratio. Ihadaconversation signi cantly higherthantheactual operating expense,’ whichcanbe requirement toshow ‘total annual N

63 6/18/18 11:32AM Regulatory Review The duciary rule loses in court, the SEC (re)enters the duciary fray, and the DOL pulls back on its enthusiasm for ESG.

DOL pulls back on ESG guidance ENVIRONMENTAL IMPACTS

hile reiterating some long-standing 2015-01 as being its interpretation of ERISA the FAB states, “in these instances, the Wpositions on socially responsive sections 403 and 404 as applied to employee factors are more than mere tie-breakers,” investing, the Labor Department has some bene t plan investments in economically and that “the weight given to those factors new cautions about an ESG emphasis in targeted investments (“…investments should also be appropriate to the relative plan design and proxy voting. selected for the economic bene ts they create level of risk and return involved compared to It has done so in the form of Field apart from their investment return to the other relevant economic factors.” Assistance Bulletin 2018-01, issued April 23, employee bene t plan”). That said, the Labor Department which is designed to provide guidance to the In the latter, the Labor Department cautions here that “ duciaries must not too Employee Bene ts Security Administration’s said it “reiterated its longstanding view that, readily treat ESG factors as economically national and regional of ces “to assist because every investment necessarily causes a relevant to the particular investment choices in addressing questions they may receive plan to forego other investment opportunities, at issue when making a decision,” and that from plan duciaries and other interested plan duciaries are not permitted to sacri ce “it does not ineluctably follow from the fact stakeholders,” speci cally about Interpretive investment return or take on additional that an investment promotes ESG factors, Bulletin (IB) 2016-01 (relating to the exercise investment risk as a means of using plan or that it arguably promotes positive of shareholder rights and written statements investments to promote collateral social general market trends or industry growth, of investment policy) and Interpretive policy goals.” Moreover, that IB 2015-01 that the investment is a prudent choice for Bulletin 2015-01 (relating to “economically reiterated the view that when competing retirement or other investors.” targeted investments” (ETIs)). investments serve the plan’s economic Rather, the FAB reminds us that Once termed SRI (for socially interests equally well, plan duciaries can use ERISA duciaries must always put rst the responsible investments, or socially responsive such collateral considerations as tie-breakers economic interests of the plan in providing investments), these days such factors are often for an investment choice. retirement bene ts. “A duciary’s referred to as ESG — environmental, social, evaluation of the economics of an ethical and governance. More Than Mere Tie-Breakers investment should be focused on nancial By way of background, the Labor In the new FAB, the Labor Department factors that have a material effect on the Department restated what it termed its characterized that observation as one that return and risk of an investment based on “longstanding position” that the duciary “merely recognized” that there could be appropriate investment horizons consistent act of managing plan assets that involve instances when otherwise collateral ESG with the plan’s articulated funding and shares of corporate stock includes making issues present material business risk or investment objectives.” decisions about voting proxies and opportunities to companies that company As 2016 (and the Obama exercising shareholder rights, reminding of of cers and directors need to manage as administration) wound to a close, its previous effort to “assist plan duciaries part of the company’s business plan and that the tone of the Labor Department’s in understanding their obligations under quali ed investment professionals would Interpretive Bulletin expressed concern ERISA” in Interpretative Bulletin 2016- treat as economic considerations under that duciaries had been reluctant to 01. The Labor Department also called to generally accepted investment theories, incorporate ESG considerations in proxy mind its “similarly longstanding position” and that these “ordinarily collateral issues” voting “or undertaking other shareholder that ERISA duciaries may not sacri ce should be considered by a prudent duciary engagement activities.” The current FAB investment returns or assume greater along with other relevant economic factors acknowledged that in IB 2016-01, the investment risks as a means of promoting to evaluate the risk and return pro les of DOL had noted that investment policy collateral social policy goals, citing IB alternative investments. “In other words,” statements are permitted to include

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SEZER33 / SHUTTERTOCK.COM for an investment alternative that re ects for aninvestmentalternativethat re ects platform inresponsetoparticipant requests alternatives, addingoneor morefundstoa choose fromabroadrangeofinvestment and beneciariesanopportunityto investment platformthatallowsparticipants The FAB explainsthatinthecaseofan ESG andInvestmentMenus disregard it.” a particularinstance, themanagermust with theinvestmentpolicystatementin other words, “if itisimprudenttocomply managers, mustalwaysadheretothem.” In appointed ERISA section3(38)investment duciaries managingplanassets, including statement containssuchguidelinesthen that IB “imply thatifaninvestmentpolicy tools tocomplywithERISA,” nordoes investments orintegratingESG-related statements mustcontainguidelinesonESG re ect aviewthatinvestmentpolicy that formerdiscussion “…does not However, thenewFAB goesontoclarify evaluate aninvestment’s riskorreturn. ESG-related tools, metrics, oranalysesto to evaluateinvestments, oronintegrating policies concerningtheuseofESGfactors beneciaries wouldraisequestions about competing viewsofplanparticipants and without regardtopossiblydifferentor investment optionfora401(k)-typeplan preferences inselectinganESG-themed to favortheduciary’s ownpolicy that intheQDIAcontext, “the decision on collateralpublicpolicygoals,” and duciaries shouldchooseQDIAsbased the QDIAregulationsuggeststhat The newFAB statesthat “nothing in additional investmentalternative…” to merelyofferingparticipantsan an investmentfundisnotanalogous alternative (QDIA), “…selection of case ofaqualieddefaultinvestment themed investmentoptionstotheplatform.” to removeorforgoaddingothernon-ESG- plan platformwithoutrequiringthe available investmentoptionsona401(k) investment alternativecouldbeaddedtothe and properlydiversiedESG-themed that “a prudently selected, wellmanaged, investment alternativesontheplatform, and of oneormoreothernon-ESGthemed result intheplanforgoingplacement their personalvaluesdoesnotnecessarily It cautions, however, thatinthe SUMMER 2018•NAPA-NET.ORG of manyinvestors.” with respecttowhichtheplanisjustone management ofpubliclyheldcompanies direct negotiationswiththeboardor incur signicantexpensestoengagein for anindividualplaninvestortoroutinely not intendedtosignalthatitisappropriate aspect, cautioningthatthe2016IB “was the currentFAB emphasizesthecost into accountthecostsinvolved.” Indeed, investment inthatcorporationaftertaking the economicvalueofplan’s that suchactivitiesarelikelytoenhance concludes thereisareasonableexpectation under ERISA, “if theresponsibleduciary consistent withaduciary’s obligations in whichtheplanownsstockcanbe in uence themanagementofcorporations activities thatareintendedtomonitoror contemplates engaginginshareholder stated thataninvestmentpolicy while inIB2016-01, theDepartment As forproxyvoting, theFAB notesthat Proxy Voting duty ofloyalty.” the duciary’s compliancewithERISA’s — NevinE. Adams, JD 65 6/18/18 11:33AM REGULATORY REVIEW

On keeping up with the duciary rule. FIDUCIARY FOCUS

he Department of Labor’s duciary (or “con ict of interest”) As we all know, this is an evolving situation, and as we go T rule, issued in nal form April 6, 2016, is a package of rules to press, it is by no means certain where things will stand as you and exemptions aimed at curbing perceived abuses by advisors. It’s read this issue. We’ve been tracking these developments on a daily an ambitious proposal with potentially wide-ranging consequences basis on NAPA Net, and archiving those developments in a special for you and your business. It’s been challenged in court in multiple section of the website devoted to the DOL and SEC duciary circuits, and prevailed in all but one — the 5th Circuit Court of rules, and your very best source for the most current read can be Appeals which, on March 15, rejected the duciary rule “in toto.” found online at https://www.napa-net.org/industry-lists/game- Since then an enormous amount of speculation has focused on changer/ or via the “Fiduciary Rule” tab underneath the Industry what might happen next — and just to keep things “interesting” — Intel tab at www.napa-net.org. on April 18, 2018, the Securities and Exchange Commission voted As we continue to remind readers — stay tuned. to release for public comment its own proposal to create a new — Nevin E. Adams, JD duciary standard for advisors.

DOL puts duciary rule enforcement on hold HOLDING “PATTERN”

s anticipated, in early May the the DOL stated. “Further, some A Department of Labor extended until nancial institutions have devoted further notice its temporary enforcement signi cant resources to comply with policy relating to its rule de ning who is the BIC Exemption and the Principal a duciary and the associated prohibited Transactions Exemption and may transaction exemptions. prefer to continue to rely upon the new In Field Assistance Bulletin 2018-02, compliance structures.” the DOL advised that based on questions The DOL’s temporary enforcement regarding duciary obligations in the policy was rst announced in FAB aftermath of the March 15 ruling by the 2017-01 and subsequently extended in U.S. Court of Appeals for the 5th Circuit, FAB 2017-02 and again in November it has concluded that nancial institutions 2017 as part of the 18-month extension should be permitted to continue relying on in the transition period for the PTE its temporary enforcement policy, pending amendments. the issuance of additional guidance. The new FAB 2018-02 further advises Speci cally, that neither the DOL nor IRS that investment advice duciaries may will pursue prohibited transaction actions rely on other available exemptions to the against investment advice duciaries who extent applicable after the 5th Circuit’s are working diligently and in good faith decision, such that the DOL “will not to comply with the impartial conduct treat an adviser’s failure to rely upon standards for transactions that would such other exemptions as resulting in a have been exempted in the Best Interest as an ERISA duciary and still receive violation of the prohibited transaction Contract (BIC) and Principal Transactions commissions, also known as “con icted” rules if the adviser meets the terms of this Exemptions, nor will they treat such advice, in that it varied based on the enforcement policy. COM . duciaries as violating the applicable advisor’s recommendation. In the meantime, DOL notes that it is prohibited transaction rules. “The uncertainty about duciary evaluating the need for other temporary While the 5th Circuit’s decision has obligations and the scope of exemptive or permanent prohibited transaction relief SHUTTERSTOCK

the effect of eliminating the requirements relief could disrupt existing investment for investment advice duciaries, including / of the duciary rule, it also does away advice arrangements to the detriment possible prospective and retroactive with the BIC exemption, which provided of retirement plans, retirement prohibited transaction relief.

a means for advisors to provide advice investors, and nancial institutions,” — Ted Godbout BILLION PHOTOS

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SEC issues answers to FAQs on share class selection disclosure initiative SHARE ‘ALIKE’?

he Securities and Exchange T Commission’s Division of Enforcement has provided additional guidance on its Share Class Selection Disclosure (SCSD) Initiative in the form of 19 frequently asked questions relating to adviser eligibility, disgorgement and the distribution of funds to clients. The SCSD Initiative was launched Feb. 12. Under the initiative, the SEC’s Enforcement Division says it will recommend “standardized, favorable settlement terms” to investment advisers who self-report that they failed to disclose con icts of interest when investing advisory clients in a share class paying 12b-1 fees when a lower-cost share class of the same mutual fund was available for the offset its advisory fee by the amount of Other questions answered in the FAQs advisory clients. the 12b-1 fees in seeking disgorgement, an include: “It appears that many investment FAQ explains that it depends on the facts • Does the SCSD Initiative apply to advisers are working diligently to evaluate and circumstances. To illustrate, the FAQ instances in which an adviser failed whether they can take advantage of the offers two scenarios that both assume an to disclose a con ict with respect to initiative and we believe that providing SRA had an agreement with its client to other fees it received in connection these FAQs will help them make that charge an annual management fee of 1% with recommending, purchasing, or determination,” C. Dabney O’Riordan, of AUM. holding a higher-cost share class, i.e., Co-Chief of the Division of Enforcement’s In the rst scenario, where an SRA not just 12b-1 fees? Asset Management Unit explains in a contends that their management fee would • OCIE already conducted an exam press release. “The initiative provides have been 1.25% absent the receipt of of my investment advisory rm a framework to quickly and ef ciently 12b-1 fees, the Division does not expect to concerning these issues. Does resolve these issues with self-reporting recommend any offset to the disgorgement this exam make my advisory rm advisers and return money to their clients.” in circumstances similar to this scenario. ineligible for the SCSD Initiative or Under the second scenario, where the immune from future enforcement Settlement Terms, Timing and Disgorgement SRA applied a portion of the 12b-1 fees it action regarding these issues? The FAQs clarify that the settlement received to reduce the annual management • Does the SCSD Initiative apply to terms apply only to the conduct identi ed fee so that the client was ultimately higher-cost share classes purchased in the announcement and only to those charged a management fee less than 1%, in brokerage accounts? advisers who meet the de nition of a “Self- the Division says that it may recommend • What does it mean to have a lower Reporting Adviser” (SRA) and have self- an offset to the disgorgement. cost share class “available” for the reported their conduct in the prescribed Addressing whether an adviser is still same fund? manner. eligible to participate in the initiative after • How will Division staff determine The Division also indicates that it does their rm has been contacted, an FAQ an investment adviser’s amount of not plan to recommend fundamentally advises that if the Division contacted their disgorgement? COM . different settlement terms with any SRA rm on or after Feb. 12, 2018, the adviser The cut-off date for self-reporting based on “the severity and scope” of the is still eligible for the initiative. But if the under the initiative is June 12. The FAQs conduct, adding that an SRA should be Division contacted the rm before Feb. 12, note that the agency does not anticipate

SHUTTERSTOCK prepared to enter into a settlement with 2018, the adviser should contact the SEC extending this deadline by which an / the Commission under the terms in the enforcement attorney working on investment adviser must notify the announcement. that investigation to inquire as to whether Division of its intent to participate in the N PROFESSIONAL As to whether the Division will take the adviser is still eligible to participate in SCSD Initiative.

ESB into account that the adviser reduced or the initiative. — Ted Godbout

SUMMER 2018 • NAPA-NET.ORG 67

NNTM_SUM18_64-67_RegulatoryReview.indd 67 6/18/18 11:33 AM INSIDE THE NEXT GENERATION By Aaron Pottichen

Millennial Matters Are the Young Guns coming for your business?

their smartphone than they do with their signicant others, parents, friends, children or co-workers. If you don’t have a platform that can interact with their smartphone, you are toast to them. And you may be toast as their advisor if you are making recommendations that don’t meet their preferences. is may mean changing the vendors you use or pushing them to update their capabilities. Third, price is more of a factor than quality. We have been in many meetings with Millennials and they are very sensitive to the price of investments, sometimes too much. So, I would approach any conversations with this group regarding the s retirement plan advisors • e power of social media is most cost of investments and recommendations we are in tune with what is evident with this generation. irty- of an active manager versus an index happening with the stock four percent of 18- to 35-year-olds fund, with lots of research to back up your market every day, but how prefer a brand that uses social position. This generation may be price- Amany of us are aware of what is happening media, signicantly more than other sensitive, but they also do their homework. with the marketplace of buyers out there? generations. In closing, I’ll turn back to the question e largest contingent of today’s working • When we look at which factors make I asked at the beginning: As retirement plan population consists of Millennials. ink Millennials loyal to a brand, price is advisors we are in tune with what is happening about that for a second. e largest percentage more of a factor than quality. (Low-cost with the stock market every day, but how of the working population consists of a index funds, anyone?) many of us are aware of what is happening demographic that other generations stereotype So, what impacts do these items have on with the marketplace of buyers out there? I as entitled, lazy and more interested in retirement plan advisors? would say there are a portion out there who Snapchat than in doing their job. First, plan advisors will have to adjust to are acutely aware of what changes are taking To combat those stereotypes and create the fact that many of the people who purchase place regarding buying patterns, who those a wake-up call to other generations in the their services (i.e., HR, COO, CFO, etc.) will buyers are, and which factors play into their retirement plan space, here are a few statistics slowly start to consist of Millennials. Being decisions to hire an advisor. to get your attention: aware of their buying patterns and preferences Look no further than the list of • Millennials are the largest generation is important. at means that having a strong NAPA Young Guns in this issue to see an in U.S. history, consisting of 92 million presence on social media is important. It will example of who understands these new people. Bigger than the Baby Boomer require advisors to have a specic strategy realities. These advisors are adjusting to population. ose in the largest part of for social media, not just post market update these new realities and meeting the buyers this group are 26 years old right now, reports on LinkedIn. of today and tomorrow where they are, and are primed to enter the workforce Second, advisors will have to ensure and they are winning business (lots of and to start deferring to their employer their recommended recordkeepers and the business). Unless you are prepared to

retirement plan. outside tools they use are enabled for a digital change, prepare to lose business to this COM . • is generation grew up in a digital- world. I am still surprised at how many new group of advisors, because they are rst world. ey spend more time, on recordkeepers don’t have basic features that coming and they’re hungry. N allow participants to access information or

average, communicating via chat/text SHUTTERSTOCK message, and they use social media make changes from their phone. Nearly 4 in » Aaron Pottichen is the President of CLS Partners Retirement /

more than other generations. 10 Millennials say they interact more with Services. He is a member of NAPA’s NextGen Committee. FIZKES

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