The offer was in place for a year, but during that time, only five of the plan’s 1,579 members took advantage of it. “I just find with a lot of our employees, they like having a pension fund but don’t care to know any more about it,” says Adrienne Guest, director of people and wellness, with Delta Hotels in Toronto.
Guest’s practical experience with offering financial advice to DC plan members diverges drastically from the results of recent research into plan members’ expectations around retirement. Benefits Canada’s 2007 Survey of Capital Accumulation Plan Members found that CAP participants are looking for a professional opinion on their retirement savings, with 74% strongly or somewhat agreeing that their employers should provide access to a financial advisor to help them make the best investment choices in their retirement plans. “I just didn’t see that in my employees,” says Guest, adding that perhaps her plan members, some of whom speak English as a second language, didn’t take advantage of the advice because they weren’t comfortable sitting down with someone face to face.
She’s confident that Sun Life and her own HR team did their best to encourage members to take advantage of the offer. Ultimately, they just weren’t that interested.
UNDERSTANDING ADVICE
The decision to offer access to financial advice is fraught with difficulties. Even the term “financial advice” has different meanings for different people. In its narrowest definition, it means having a financial advisor sit down one-on-one with plan members to give them specific recommendations on where they should invest their money. But in a broader sense, financial advice can also encompass estate planning, insurance and other investments outside of the plan.
This broad-based financial planning isn’t widespread in the DC industry, says Bill Kyle, senior vice-president, group retirement services, with Great-West Life in London, Ont. And Teresa Morgan, national director, member services and marketing communications, with Standard Life in Montreal, says she’s not certain that this type of broad-based financial planning is what members are looking for from plan sponsors. “I’m not so sure that’s the indication we’re seeing,” she says. “Plan sponsors themselves are playing with the question and trying to understand what it ultimately means to provide advice to their members.”
The Joint Forum of Financial Market Regulators’ Guidelines for Capital Accumulation Plans (CAP Guidelines) don’t define financial advice except to say that should a plan sponsor enter into an arrangement with a service provider or refer members to a provider that can offer investment advice, the plan sponsor should establish criteria for choosing the service provider and apply this criteria during the selection process. “I don’t think the industry has completely defined what financial advice is,” says Morgan. “Until we, as an industry, come to an agreement as to what financial advice means for DC members, it’s going to be difficult for us to determine whether we can fulfill that need.”
The line between advice and education is equally blurry. The CAP Guidelines don’t define either term, preferring to use terms such as “information” and “decision-making tools.” That’s a weakness of the guidelines, says Peter Arnold, national practice leader, investment and DC consulting, with Buck Consultants in Toronto. “We think the distinction is fairly well understood in practice,” he says. “Because we would broadly categorize advice as guidance to help make decisions. It’s implied [in the guidelines that] the tools the members are using should help guide them to make a decision. But we don’t see education and advice being as differentiated as they could be.”
But plan sponsors are definitely more open to the idea of offering access to financial advice these days. “We’ve seen a big change in the last year in particular,” says Kim Duxbury, assistant vice-president, communications and education, group retirement services, with Sun Life Financial in Toronto. “Many of our plan sponsors have acknowledged that more needs to be done to help plan participants. More are seeing investment advice as a possible solution.”
WALKING THE TALK
There’s no question that the role of recordkeepers has evolved over the years to the point where they are providing much more financial education, rather than merely offering basic enrollment seminars in which members are presented with their investment options. At Standard Life, for example, licensed financial consultants from the company are available following its education seminars to sit down one-on-one with plan members and review their overall portfolios within the DC program. But the company doesn’t call it advice. “We consider it to be guidance,” says Morgan. She adds that it’s more about guiding behaviour and developing an overall education and communications program that will nudge plan members in the right direction—whether it’s choosing an investment fund, maximizing their contributions or taking advantage of employer matching.
Meanwhile, Great-West Life recently launched a new offering called the Member Investment Selection Service. Plan members who phone the call centre are walked through a questionnaire, placed into a risk profile and then given recommendations on which of the five groupings of funds are most suitable for them. Kyle sees this new service as advice, because “we will specifically advise plan members where to put their money.” The optional service is priced per member, and works out to about $20 per member on an annual basis.
Plan sponsors that want to go beyond what their recordkeepers offer can opt to use a feefor- service provider. For example, Enbridge Gas Distribution has been using TE Wealth for more than 20 years to provide pre-retirement seminars to its employees. The company offers between four and six pre-retirement sessions each year to employees age 45 and older. “It’s really nice to have an outside fee-for-service-only provider come in and do this kind of thing for us,” says Cindy Koenders, pension consultant, with Enbridge Gas Distribution in Toronto. “There’s no selling.” But she sees TE Wealth’s services to her plan members as financial education—not as advice.
FEE FOR SERVICE
For its part, TE Wealth sees its role as quite different from that of the recordkeepers. “Their role, as we see it, is to basically come in and provide information,” says Scott McKenzie, regional vice-president and general manager, with TE Wealth in Toronto. “Our role is to take the information and turn it into education and advice. It’s taking someone from just getting the information to understanding it and building up their knowledge—not only about their pension plan, but about their whole financial world.” Arnold agrees. “It’s going to be way beyond the capability of the sponsor or the [recordkeeping] service provider to be able to say to that individual, ‘Here’s how your total retirement program should work, taking into account your plan and personal savings.’”
TE Wealth offers a variety of services, from financial education program audits to one-on-one advice. “We built our offering around the idea that there’s huge risk to employers in having these DC plans because if their employees don’t invest properly, or they don’t contribute, or they leave their money in cash, at some point down the line, people are going to come back to their employers and say, ‘You didn’t give me any help on this and now, here I am with no money,’” says McKenzie.
At $250 an hour, one-on-one advice doesn’t come cheap. It’s one of the reasons, says McKenzie, that most of the one-on-one sessions are focused on people who are within 10 years of retirement. Seminars are less costly, ranging from $1,500 for a half-day workshop to $3,000 for an entire day. “If you get 30 people into a full-day workshop, it’s cheaper,” says McKenzie.
ROLES AND RESPONSIBILITIES
There’s certainly no obligation for plan sponsors to offer members access to financial advice. Under the CAP Guidelines, “the plan sponsor does not have the responsibility to ensure that their members use the information, but they have the responsibility to ensure their employees are aware of the information and how they can get it,” says Morgan.
The CAP Guidelines note that members “should also consider obtaining investment advice from an appropriately qualified individual in addition to using any information or tools the CAP sponsor may provide.” Each plan member is ultimately responsible for his or her own financial affairs. “The sponsor is not required to handle the entire financial circumstances of the individual,” says Arnold. “And that’s a very important line to draw in the sand, in terms of what the sponsor is required to do. The old line is that a DC plan is different from a defined benefit [DB] plan because the member is going to bear the investment risk.
But this is another line that we think is just as important—that is, the sponsor is not responsible for the entire financial circumstances of the individual. [The plan sponsors] are responsible for the program.”
And plan sponsors are “certainly very conscious of the risks associated with the perception of being tied to a service provider that is providing financial advice or a financial planning company,” says Arnold. “As much as you might be able to state that there’s no contractual arrangement between the company and the sponsor, if that advice backfires, it could come back to the sponsor.” He adds that there has not yet been a case in Canada in which a member has taken a plan sponsor to court over bad advice.
Koenders says that Enbridge probably wouldn’t consider offering financial advice to all employees because of the perceived liability. But Duxbury says that some of Sun Life’s clients have asked her about the potential risks of not offering advice.
“Some of them are looking at it through a different lens that wasn’t necessarily talked about before,” she says. McKenzie notes that it’s pretty hard for plan sponsors to reach every single member. “But if you’ve offered every employee the chance to go to a workshop, online education [and] one-on-ones at certain points in their careers and they don’t take advantage of it, I don’t think they have much of a leg to stand on,” he says. “I think if everyone’s been very clearly offered it, then you’ve done your part.”
TO ADVISE…OR NOT?
Whether or not you decide to offer access to financial advice has less to do with what your competitors are doing and more to do with the plan’s purpose. “In DB land, you’re always looking at what the other guy’s doing,” says Arnold. “In DC land, it’s very dangerous to look at what the other guy is doing because it might not fit at all with what works for you as a sponsor or your membership. It’s very much a leadership mentality that’s going to be successful in the DC landscape. You’ve got to be a leader in mapping your own future.”
For her part, Guest doesn’t think that Delta Hotels will be offering any more “free lunches” any time soon. While she does feel that the company has an obligation to revisit the advice issue at some point in the future, it’s not something it would consider doing again within the next year. She plans on getting feedback from plan members at the annual education sessions to see if they express more of an interest in financial advice then. “Frankly, if there are only five people expressing interest again, it’s not a huge financial concern for the company,” she says. “But I don’t see that that number would increase greatly.”
Andrea Davis is a freelance writer in Guelph, Ont. andrea.davis@rogers.com
For a PDF version of this article, click here.
