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Retirement Planning Threats Move to the State Level

With whom would you prefer to invest your retirement savings: a trained and licensed professional financial advisor or the state of California? I know how I would answer that question.

Yet more and more, government officials at state and federal levels are encroaching on the role of the advisor by dictating in strict terms how advisors should deal with clients. In some cases, states are even competing directly with the products and services advisors provide. In the face of these and other threats, political advocacy has become a mandatory part of the insurance and financial advisor’s job.


State-Run Retirement

California and seven other states have passed mandatory state-run retirement plans that will compete with the private market. Other states are considering similar legislation. The state legislators behind these laws have a noble objective: to increase the retirement savings of workers who are not preparing for a financially secure future. This is a goal shared by financial professionals as well.

All the insurance and financial advisors I know would love nothing more than for each and every one of their clients to enjoy a happy, healthy and financially secure retirement. We get tremendous job satisfaction from knowing that we help people who have worked hard their entire careers and have taken responsibility for providing for themselves and their families.

Unfortunately, state-run retirement programs are looking in the wrong direction for a solution.

Availability of and access to retirement savings options are not the problem. A strong, vibrant private-sector retirement plan market already offers diverse,

affordable options to individuals and employers. Nearly 80 percent of full-time workers have access to retirement plans through their employers, and more than 80 percent of workers with workplace access to plans participate in them.

A better approach for states would be to devote resources encouraging workers to participate in already existing plans. Washington state and New Jersey, with the grassroots encouragement of advisors led by the NAIFA associations in those states, have set up marketplaces designed to bring together employers and private-market plan providers. This arrangement allows the state to promote increased savings by workers and help employers participate, while giving consumers access to the quality and variety of plans offered by the private market.

It’s not too late. Many states have shelved legislation that would create state-run retirement plans, opting instead to commission studies to determine whether such plans are feasible. Even in the eight states that have passed legislation to establish such programs, none of the plans has yet been enacted.


DOL Rule Limits Retirement Planning

As many of you know, it is not only state governments that are coming between advisors and retirement savers who need their advice.

The Department of Labor’s fiduciary rule for advisors who serve retirement- plan clients threatens to limit the availability of advice, services and products for workers preparing for retirement. A recent NAIFA survey found that 78 percent of advisors believe the rule will increase their compliance costs, and 84 percent believe it will have some negative effects on their ability to serve clients.

The NAIFA survey and other studies have found that the rule will likely leave many middle- and lower-income consumers with limited or no access to retirement advice and products.

It seems as if some state and federal policymakers are intent on cutting advisors out of the retirement planning business. This would be a really bad idea. Studies show that consumers who work with financial professionals are more likely to have retirement plans than those who do not. They also tend to save more for retirement and find themselves in a better financial situation when they do retire.


Advisor Activism is Key

Government decisions loom large in the professional life of every insurance and financial advisor. Organizations like NAIFA and the American Council of Life Insurers actively promote the interests of the industry in Washington, D.C., and in state capitals around the country.

But grassroots activists, such as agents and advisors working directly with clients, often can make impressions on lawmakers and regulators many times greater than those made by professional lobbyists.

That’s why political advocacy, on both state and federal levels, is an important part of the advisor’s job description.


Paul R. Dougherty, LUTCF, FSS, HIA, is the president of the National Association of Insurance and Financial Advisors. Paul may be contacted at [email protected]

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