Displaying items by tag: 401k

Thursday, 28 March 2024 06:17

Annuities Could Be Pension Replacement

In the face of escalating inflation, Americans are increasingly longing for the retirement security once provided by pensions, a sentiment reflected in a survey revealing widespread concerns about the reliability of existing retirement plans such as 401(k)s.

 

 This shift away from traditional pensions stems from their expense and risk for companies, leading to the widespread adoption of defined contribution plans like 401(k)s, which place the onus of retirement planning on employees. However, the recent surge in inflation has exposed the vulnerabilities of 401(k)s, particularly for older adults nearing retirement. 

 

To address this, there's a growing interest in annuities, which offer a guaranteed income stream and can be seen as a modern iteration of traditional pensions. Annuities, available in various forms including fixed and variable, provide retirees with a way to insure their income stream, offering stability in an uncertain financial landscape and potentially bridging the gap left by the decline of pensions and shortcomings of 401(k)s.


Finsum: Annuities can offer a more secure return and replace the void left by pensions for many Americans.

Published in Wealth Management

Building and maintaining meaningful relationships with plan participants is an ongoing challenge for 401(k) advisors. Demonstrating their value is vital. One powerful strategy lies in the skillful use of managed accounts, which showcase their investment expertise and enhance participant engagement.

 

Managed accounts allow advisors to personalize their investment guidance at scale. By collaborating with the right recordkeeping partner, advisors can craft the portfolio allocations within the program, thus affecting the allocations within individual accounts. This partnership enables both parties to highlight their value propositions: advisors provide strategic investment guidance, while the recordkeeping platform facilitates participant access to this invaluable services.

 

Ed Murphy, President and CEO of Empower, recently shared insights with planadviser.com on the strong demand for discretionary, personalized managed portfolios. He also commented that nearly 9% of their participants are enrolled in their managed account program, underscoring its value and appeal. Murphy's observations reflect a broader industry trend where participants seek personalized financial strategies, highlighting the importance of advisors integrating managed accounts into their service offerings.


Finsum: Implementing manage accounts within a 401(k) plan is an effective and scalable way for plan advisors to demonstrate value to participants.

 

Published in Wealth Management

A financial movement of massive proportions is unfolding: billions of dollars are flowing from 401(k) plans into rollover accounts. Advisors see this as a golden opportunity, and research suggests this trend will persist, offering a potential boost to their businesses.

 

However, unlocking this opportunity requires understanding participant behavior. Notably, a significant portion of advisor-assisted rollovers involve existing client relationships. This underlines the crucial role of building rapport with individuals early in their careers, well before they face rollover decisions.

 

While establishing connections is paramount, not all advisors have the resources to cater to every participant. This has led to a collaborative approach, with some advisors partnering with recordkeepers to segment participants. In this scenario, advisors focus on those participants whose account balance size requires more time and effort to service, while recordkeepers assist others.

 

This partnership approach ensures participants receive the best solution, regardless of account size. It also transforms the advisor-recordkeeper dynamic from adversarial to cooperative, creating a win-win situation for all involved.

 

By actively fostering relationships and embracing strategic partnerships, advisors can effectively ride the rollover wave and expand their wealth management reach. This requires a proactive approach, recognizing that long-term relationships are invaluable in capturing this lucrative opportunity.


Finsum: The key to capturing 401(k) rollovers lies in building relationships; with plan participants and plan recordkeepers.

Published in Wealth Management

The U.S. Department of Labor's proposed redefinition of what triggers fiduciary status for retirement plan advisors and providers is drawing intense scrutiny from industry professionals, with concerns about its potential impact on information access and plan creation.

 

Prior to the January 2nd deadline for public comments, prominent figures like Ed Murphy, president and CEO of Empower, have voiced their opposition. A central worry surrounds the chilling effect of the new definition on certain conversations between providers/advisors and plan sponsors/participants. Fear of inadvertently triggering fiduciary status may lead many to withdraw from such communication, effectively cutting off a crucial source of information for those navigating retirement and plan decisions.

 

Murphy's point, highlighted in a recent planadviser.com article, illustrates this concern: "The proposal would create obstacles to plan creation and could effectively ban many sales conversations between providers and plans or individuals."

 

However, Tim Hauser, the DOL's deputy assistant secretary for program operations, maintains that the proposal is not meant to regulate routine "hire me" (sales) discussions. He has actively sought industry suggestions on language revisions to better clarify this intent.


Finsum: Defined Contribution professionals share their concerns with the Department of Labor regarding their proposed rule regarding what communication triggers fiduciary status.

 

Published in Wealth Management

When it comes to investing for retirement, most think of IRAs and 401(k)s due to the unique tax advantages. However, there is a tradeoff as these accounts tend to be less flexible. According to Christine Benz, Morningstar’s director of personal finance and retirement planning, there are some upsides to investing for retirement in taxable accounts.

 

These advantages include the ability to save and invest as much money as available, withdraw funds with no penalty or limitations, and no constraints on investment choices. Using taxable accounts for retirement investing is also necessary for ‘super-savers’ who have maxed out contributions to tax-advantaged retirement accounts. 

 

Benz notes that with the right selection of investments, the taxable account can become as tax efficient as an IRA or 401(k). Additionally, it can help with financial goals of a short or intermediate nature like a down payment for a house, a remodeling project, or a vacation home. 

 

She notes that model portfolios are well-suited for tax-efficient investing in taxable accounts. She recommends structuring these model portfolios into 3 components. One is a liquidity basket for short-term spending needs, a high-quality municipal bond fund basket that is geared for withdrawals between 5 to 8 years, and the rest invested in a globally diversified basket of equities. 


Finsum: For retirement investing, there is still a place for taxable accounts especially for specific purposes. Here’s how to use model portfolios to achieve these goals.  

 

Published in Wealth Management
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