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The New Paradigm in In-Plan Advice for Workplace Retirement Accounts

The New Paradigm in In-Plan Advice for Workplace Retirement Accounts

September 23, 2023

In recent years, a seismic shift has been taking place in the realm of workplace retirement accounts, such as 401(k), 403(b), and 457 plans. The traditional approach of offering these plans as mere savings vehicles has evolved into a new paradigm—one that emphasizes the importance of in-plan financial advice. This transformation is driven by a growing recognition that employees need personalized guidance to navigate complex financial decisions and secure their retirement future. In this article, we will explore the changing landscape of in-plan financial advice, its benefits, and how it's reshaping the retirement planning experience.

The Evolution of Workplace Retirement Accounts

Historically, workplace retirement accounts were primarily viewed as mechanisms for employees to save for retirement, with limited guidance provided by plan sponsors or access given to outside investment professionals. However, as individuals shoulder more responsibility for their own retirement savings, the limitations of this approach have become apparent. The new paradigm recognizes that employees need more than just a retirement savings account; they require tailored financial advice to maximize their savings potential and retirement preparedness.


Key Factors Driving the Shift:

Complexity of Financial Decisions:

Retirement planning is no longer a straightforward process of contributing to a retirement account and waiting for the funds to grow. Employees are faced with complex choices, such as asset allocation, investment selection, risk tolerance assessment, and withdrawal strategies. In-plan financial advice can help individuals navigate these complexities.

Diverse Workforce:

The modern workforce is diverse in age, financial literacy, and retirement goals. One-size-fits-all investment options do not suffice. In-plan advice recognizes these differences and offers tailored solutions for various employee demographics.

Regulatory Support:

Regulatory changes, like the SECURE Act in the United States, have encouraged the inclusion of more advice-driven features within retirement plans. These changes have created a conducive environment for the growth of in-plan advice.


Benefits of In-Plan Financial Advice

The new paradigm of in-plan financial advice provided by professional advisors offers several compelling benefits to both employees and employers:

Improved Retirement Outcomes: In-plan advice helps employees make informed decisions, leading to better retirement outcomes. Participants are more likely to invest appropriately, manage risk effectively, and achieve their financial goals.

Increased Engagement: Employees who receive personalized advice are more engaged with their retirement accounts. They are more likely to log in, review their investment options, and take proactive steps to optimize their retirement savings.

Reduced Financial Stress: Financial stress is a common issue among employees. In-plan advice can provide strategies to alleviate financial anxiety, leading to happier, more focused, and productive employees.

Competitive Advantage for Employers: Employers offering robust in-plan advice programs may attract and retain top talent, enhance employee satisfaction, and showcase a commitment to employee financial wellness.


Reshaping the Retirement

Planning Experience

To embrace the new paradigm of in-plan financial advice, employers, plan sponsors, and financial advisors should consider the following steps:

Improved Retirement Outcomes: In-plan advice helps employees make informed decisions, leading to better retirement outcomes. Participants are more likely to invest appropriately, manage risk effectively, and achieve their financial goals.

Increased Engagement: Employees who receive personalized advice are more engaged with their retirement accounts. They are more likely to log in, review their investment options, and take proactive steps to optimize their retirement savings.

Reduced Financial Stress: Financial stress is a common issue among employees. In-plan advice can provide strategies to alleviate financial anxiety, leading to happier, more focused, and productive employees.

Competitive Advantage for Employers: Employers offering robust in-plan advice programs may attract and retain top talent, enhance employee satisfaction, and showcase a commitment to employee financial wellness.


Conclusion

The transformation of workplace retirement accounts into hubs of in-plan financial advice represents a positive shift towards empowering employees to take control of their financial futures. This new paradigm acknowledges the complex and diverse financial needs of today's workforce and offers tailored solutions to meet those needs. As the retirement landscape continues to evolve, in-plan financial advice will likely play an increasingly pivotal role in ensuring that employees achieve their retirement goals with confidence. Employers, plan sponsors, and financial advisors who embrace this paradigm are not only contributing to investors financial well-being but also positioning themselves as leaders in workplace benefits and financial literacy.

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About the Author: Matt Hamilton, President


Matt Hamilton serves as President of TPFG and oversees sales, national accounts, strategic partnerships, private wealth, marketing, and the RiskPro software team. Before coming to TPFG, he was Vice President of Model Portfolios at Fidelity Institutional (FI), where he was instrumental in launching Fidelity’s Model Portfolios business including product, operational, and marketing support structures. Prior to that, he was Vice President, ETF Strategist-Model Portfolios at State Street Global Advisors where his role was commercializing institutional multi-asset class capabilities as ETF model portfolios.


Disclosures

The information presented is the opinion of TPFG and is believed to be accurate but has not been independently verified. TPFG makes no warranties as to the accuracy of the information or any representations made or implied. Articles cited/linked to are the express opinion of the third-party author. There are no affiliations between TPFG and any third-party links. All information may be changed without notice. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service and should not be relied on or deemed the provision of tax, legal, accounting or investment advice. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.