Compliance April 18, 2016

Fiduciary Rule Action Steps for Plan Sponsors

The final fiduciary rule is aimed at advisers, but plan sponsors will be affected by changing relationships with providers, communication to participants and more.
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While the Department of Labor’s (DOL) final fiduciary rule is focused on advisers, plan sponsors should still be prepared for ongoing changes depending on how their advisers respond to the rule.

“The impact to plan sponsors is an evolving concept,” Leah Singleton, attorney at Alston & Bird LLP, said during a recent webinar titled “Final Fiduciary Advice Rule Adopted. What’s Next?”

Specifically, the final rule will affect relationships and contracts with plan service providers, communication to participants, costs (who gets paid and how), compliance and disclosure obligations, and fiduciary liability for engaging and monitoring advisers.

“This is going to be a very good time to evaluate who provides services to your plan and how it is impacted under these rules and how you are impacted as a plan sponsor,” Singleton says.

During the webinar, Singleton gave a rundown of the basic action items a plan sponsor should review in the wake of the final rule. To begin, plan sponsors should know whether the plan’s investment adviser is a fiduciary and they should be prepared for possible changes, whether it’s a new contract, disclosure statements or changing compensation arrangements.

Plan sponsors should also review distribution forms and other communications to plan participants to ensure they don’t provide investment advice, and they should make sure someone is identified as a fiduciary for advice solutions. Plan sponsors will need to ensure that the group education meetings offer less specific investment information, too. “You can just direct them to where they can find the answer, but don’t advise them on a particular investment,” Singleton says.

In the final rule, the DOL says plan advisers and sponsors can continue to provide general education about retirement savings without prompting fiduciary duties. It also says that investment advice “does not include communications that a reasonable person would not view as an investment recommendation, including general circulation newsletters, television, radio, and public media talk show commentary, remarks in widely attended speeches and conferences, research reports prepared for general circulation, general marketing materials, and general market data.”

Data and Research April 18, 2016

‘Finger Wagging’ Undermines Financial Wellness Programs

Just telling retirement plan participants to think long-term won’t do much to move the needle on retirement readiness.

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When it comes to saving, Americans are more inclined to set aside earnings for purchases that can be enjoyed sooner rather than later, leading to biases against the “long-term” language increasingly stressed by the retirement planning industry.

According to the new “Digital Motivation Research” report from MotiveIndex, a firm specializing in behavioral finance and market research, four out of five individuals recently surveyed “do not believe in delayed gratification when it comes to saving, yet that is the message given to most of them through various financial education programs.” 

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Among a sizable sample of 4,500 workers, the analysis shows those who are less likely to save for retirement also “feel alienated and turned off when a financial institution tells them to change their behavior and/or think long term.” Perhaps most striking, the MotiveIndex findings showed that these consumers are actually compelled to lie when asked about their financial intentions and plans, “as they are emotionally unwilling to change their spending habits.”

Nearly half of the non-saving population (40%) also believes that spending money and taking on debt is “okay as long as it’s done with the welfare of others in mind and justifies spending decisions based on the belief that it benefits others in their family or circle of friends,” the researchers explain. “These individuals have a vision for how their life is supposed to be, so they do everything in their power to achieve it.”

It won’t exactly be news to experienced plan sponsors to hear that emotion factors into plan participants’ decisions about saving, but MotiveIndex warns that near-term emotional thinking cannot be underestimated as an obstacle to positive retirement outcomes, even among experienced clients who understand more than the basics of finance. In other words, even committed savers will now and again face strong emotional pressures to break with a long-term financial plan—and many will choose to do so without careful guidance. 

NEXT: Emotion and finance go hand-in-hand 

MotiveIndex says its research is unique because of the depth to which it explores the semi-rational thinking behind what are ostensibly bad financial decisions.  

“Whether it involves investing in organized sports for their children, buying a bigger more expensive home, upgrading their cars, or even rewarding their loved ones with expensive dinners and experiences, this cohort often ignores logic for the emotional satisfaction of doing something that benefits others,” the report explains.

The analysis goes on to suggest these motivations for spending more than is strictly necessary for oneself and one's family and friends are “often unspoken” or tied up with other complex considerations, but they are nevertheless extremely influential in the financial decisionmaking process of the typical American worker.

“By analyzing the unspoken motivations of consumers, we were able to discover that traditional education methods were ineffective, as consumers considered the messages used by financial institutions to be more like finger wagging,” explains Jason Partridge, co-Founder of MotivIndex. “To truly resonate with individuals, the financial community should start with programs that provides individuals with a reason to save short term by connecting it to important events in their lives. The bottom line is that financial institutions must build trust before trying to get people to think about the future.”

Additional research results are presented here. 

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