401(k) Tax Reform Boost Spells Opportunity for Advisors

Investment advisors and clients are likely seeing a few extra bucks in their paychecks, and in their investment portfolios, due to passage of the tax reform bill.

But the party is just getting started for both groups on the retirement benefits front.

That’s due to a somewhat hidden, but influential outlier from the tax reform bill, which was signed into law by President Donald Trump in late-December.

The bill is prompting more U.S. companies to bring financial advisory help in-house to help workers maximize their 401(k) plan experience.

Two-thirds of corporate executives (66 percent) are planning or considering making changes to their benefit programs, or have already taken action, according to a Willis Towers Watson survey.

“The most common changes organizations have made or are planning or considering include expanding personal financial planning (34 percent), increasing 401(k) contributions (26 percent) and increasing or accelerating pension plan contributions (19 percent),” the report found.

What’s more, plenty of company bigwigs who haven’t committed to expanding their 401(k) operations are considering doing so.

“The tax reform law is creating economic opportunity to invest in their people programs,” said John Bremen, managing director, human capital and benefits, at Willis Towers Watson. “While a significant number have already announced changes to some of their programs, the majority of employers are proceeding to determine which changes will have the highest impact and generate the greatest value.”

That’s good news for financial advisors looking to break into the lucrative corporate benefit planning market.

“One of the best things an employer can do for employees is to have a financial planner who can discuss portfolio management, as well as how to save and cut expenses,” said John Ingoglia, president of Socotra Capital, a lending and investment firm based in Sacramento, Calif.

That move is also in the employer's interest, as the more stable the employee’s finances, the more stable and productive the employee is at work, Ingoglia said.

“Advisors for companies like this are often third-party administrators, or part of the finance team that manages the company’s 401(k) and profit sharing,” he added. “This person tends to have multiple functions, and should help people learn the basics of retirement planning.”

Companies Need Advisors

The tax reform act is pouring cash into corporate bank accounts – a fortuitous scenario for investment advisors who wind up with new corporate clients. But the notion that companies should have financial advisors on board isn’t a luxury – it’s a necessity.

“There are several reasons why companies will outsource the management of their retirement benefit plan for their employees,” said Frank Guiffre, a wealth management specialist at Halliday Financial in Albany, N.Y.

Guiffre laid out those reasons below:

1. Fiduciary liability. Plan sponsors and human resources departments no longer want to be solely responsible for the decisions made to the plan on behalf of participants.

“That is to say, the investment choices offered, the platform design, the vendors chosen can all be areas of fiduciary liability if not followed properly,” Guiffre said. “An advisor can alleviate some of the liability by taking on a certain level of responsibility.”

2. Education. On the heels of liability is employee education.

“Many sponsors and human resources departments are not licensed or trained in the investments and by law cannot offer advice,” Guiffre said. “Education can be a powerful tool for the employees. Advisors have the knowledge and capability to offer this expertise.”

3. Costs. With tax laws that favor corporations, companies might now have the ability to hire and pay an advisor to look over their 401(k) plan for their employees.

“For the employees, if wages rise, and consumer confidence rises, they may have more money to put into the plan,” Guiffre said. “More money in the plan means potentially more education, more administrative issues, etc. In the end, the cost of the advisor to help manage and educate could potentially bring the costs down.”

4. Time. “The more time that plan sponsors and human resources departments need to spend on administration of a 401(k) plan, the less time they have to do other important tasks of running the company,” Guiffre said. “By hiring an advisor, they create more time.”

'A Great Boost'

Another area where investment advisors can really help company 40l(k) investors in is on the investment side, with asset allocation. That’s a problematic issue if employees are left to their own retirement plan devices.

“During this economic expansion, retirement plans have received a great boost, giving many folks an opportunity to see what retirement might be like if they plan correctly,” Ingoglia said. “With every economic expansion, rebalancing of one's portfolio is often difficult, since no one likes to sell winners and reposition in asset classes that are lagging. After all, if the market is hot, no one wants to miss out.”

How can advisors get a foot in the door of companies that could be looking to add professional financial help? Leveraging current clients is one good idea.

“Advisors can capitalize on this opportunity by networking current clients,” Guiffre said. “Most clients can probably give you input on whether or not their employer has a 401(k) plan available and if anybody is helping manage it.”

If a client has never seen an advisor at his or her company, that’s a sign that help may be needed.

“Keep your eyes and ears open to these opportunities and ask your client for an introduction to company decision makers,” Guiffre said.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms. Brian may be contacted at [email protected].

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