Despite the risks to plan sponsors, however, could offering investment advice be an advantage? “In the age of labour shortages and longevity, if sponsors are looking to hire and retain employees, then I think this could be a beautiful benefit to add to their list,” says Purcell.
A benefit that could offer either specific advice limited to the pension plan or broader advice on full retirement planning. While the UBC Faculty Pension Plan provides members with a list of fee-for-service financial advisors, the faculty association and UBC itself have set up a benefit for any type of retirement counselling. Faculty members can receive three hours of individual counselling up to $750. “They can use any financial advisor or consultant who has a professional designation,” says Neighbour. “We would have to approve the advisor if [he or she] didn’t have a designation, but they can use whoever they feel would be most effective for the questions they have.” (For another plan sponsor’s view on retirement counselling assistance, go to www.benefitscanada.com/extras.)
This certainly bodes well for employees as they enter the de-accumulation phase. “At retirement, regardless of how simple your accumulation plan design was, everybody needs advice,” says Janice Holman, a principal with Eckler Ltd. “It’s probably the biggest purchase you’ll make in your life, converting all of your retirement savings into a form of income.”
If You Build It, Will They Come?
While it is highly recommended that plan members seek the services of a financial advisor, is there any indication that they will follow through? Unfortunately, the statistics don’t look good. While Desjardins Financial’s Rethink Retirement: 2008 Survey of Canadians’ Preparedness for Life After Work indicates that 85% of Canadians say they have easy access to a financial advisor, 24% admit they have little or no interest in planning for retirement. And, according to Sun Life Financial’s Unretirement Index (released in January), less than half of those surveyed have spoken to a financial advisor to create or update a written retirement plan within the last year.
“I think the plan member should have a financial advisor long before they become a plan member,” says Purcell. “This generation hasn’t really been made responsible because of DB plans. There was a big trust that the employer was going to provide for you in retirement, and that was it.”
Within the relatively small number of plan sponsors that offer advice, the uptake from members is small, too. “We worked with one client that offered advice—on-site, fully paid for—and had less than 15% of plan members take advantage of it,” says Campbell. “The employer ended up doing away with it because the logistics around arranging everything were just not sustainable.”
For another company, with a number of locations spread across southwestern Ontario, that currently offers advice, the feedback to date has been mixed. “I’ve heard from certain locations that the advice has not been consistent,” says Gilbert. “It’s not going to be the same advisor who meets with each employee. As a result, you’re going to get differing levels of financial advisory experience and expertise.”
The 2008 Benefits Canada Third Annual Survey of CAP Members asked participants, if their plan sponsors made advice available to them free of charge, would they use it? Seventy-one percent of respondents would, but only 18% would pay for it themselves.
“It’s easy to say, ‘Yes, I would use advice,’” says Campbell. “When push comes to shove, though, do plan members actually take the steps—even if a sponsor were to offer it? It comes back to behaviour [and] best intentions, and the difference between best intentions and having it transpire into action,” she adds.
Neighbour blames the pension industry itself. “We’ve failed miserably to get people interested in investment management,” she says. “We seem to have [had] this idea that [with DC plans,] everybody’s going to be interested in their investment options and making all these decisions. Well, guess what? Nothing happened.”
New and Improved Solutions So if nothing’s happened, what now? The B.C./Alberta Joint Expert Panel on Pension Standards has suggested in its report that “the governments enhance and expand the financial literacy component of their high-school curricula.” Neighbour agrees but thinks this education should start even earlier. “There’s nothing wrong with teaching Grade 5s about money,” she says. “It’s actually sad, the [number] of people [who] really don’t understand finances.”
Target date funds, in which a portfolio’s asset mix is automatically reset according to a specific time frame (such as the date of retirement), are an option. They are very popular in the U.S. and have been crossing over into Canada as well. According to the Survey of CAP Members, 38% of members indicated that their employers offer target date funds in their employee retirement savings plan. Furthermore, 66% said they’d be interested in having access to these funds.
Offering a single investment fund in the DC plan is another possibility. “One balanced fund, no options allowed, would require no investment education or advice,” says Neighbour. “That’s probably not a bad way to go.”
Another option is to enlist the recordkeepers, some of which are now offering an “advice service” as part of their recordkeeping packages. Great-West Life’s Member Investment Selection Service is one such program. To date, Great-West Life has had at least 50 plan sponsors—some of which are a significant size—adopt this service. “By providing advice through a centralized location using asset allocation tools and concentrating on providing the advice with five risk profiles to the members, we can ensure the quality of the service,” says Michael Campbell, vice-president, marketing, group retirement services, with Great-West Life. “That’s more cost-effective than sending armies of people out to meet one on one with [members].” Even the risk factor is covered. “We do sign an agreement with the plan sponsor stating that Great-West Life is accountable for the quality advice that we provide.”
Others, however, are not convinced that this type of service will solve the investment advice problem. “You have to have a full-on relationship with this person to understand their risk tolerance, their retirement planning goals,” says Purcell. “It’s not something to be done over the phone in eight minutes. It’s a huge undertaking.”
Until the advice issue is resolved, plan members will have to make do with the education and communications that plan sponsors do provide to fill the knowledge gap.
Brooke Smith is Associate Editor of Benefits Canada.
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© Copyright 2009 Rogers Publishing Ltd. This article first appeared in the March 2009 edition of BENEFITS CANADA magazine.