Hanson: It would be nice if the Department of Labor actually helped encourage savings. People aren't utilizing their 401(k)s well enough and they make poor investment choices.
Brackett: Another problem: when you're competing in the 401(k) space it is generally about the fees ... and the fees ... and the fees.
Say you have a 100-person company. You're going to be required to meet with everyone up to the CEO. Then you find that employees on the lower end of the spectrum can only put in $25 a month. The margins are gone and you just can't afford to do that business. It doesn't make economic sense.
Hanson: The smaller firms will be hurt the most. The large firms will pay for everything. The small firms say, "I can't afford it, but if it's bundled in..."
Brackett: If you're talking about Chevron they will pay for the service, but we're in the smaller space with fewer than 200 or maybe even 100 people. Most of that business is approached as brokerage business.
Hanson: Fidelity and Vanguard and Schwab are all in that space. And they're not brokers.
Brackett: That's right. The consumer will lose because there isn't advice available there. It's not about the money; it's about the money and the brokers will walk away if they can't get paid.
Schweiss: In this industry we're now realizing it's not about which funds you pick, it's about how much the employee is putting away for retirement. And if it's $25 a month, sorry, you're not going to get there. If it's $25 a week, you're not going to get there. We can have a greater impact in this industry influencing how much money they put away than which funds they pick.
A proposal in President Obama's budget proposal will create payroll IRAs, and if it becomes law will require that a company at least offer access to its payroll system for all employees to contribute to an IRA through the payroll system.
Kay: This all leads back to the point of education; that consumers need better education to understand what they need to do to make good choices.
When clients in their 50s and 60s come in and their financial education is zero, and they've cobbled together some assets, and also people in their 20s wanting financial guidance, they need to be pointed in the right direction. As stewards, we need to impress upon our clients, fellow advisors and the general public the need for financial education. They need to take ownership and responsibility.
FA: Let's talk about the switch from the SEC to State Registration. Will that drive advisors to consolidation?
Kay: I desperately hope this switch will be a driver for consolidation of the industry. It's important for advisors to gain scale as businesses. But also clients and consumers should not have to rely on the solo practitioner because if something happens to them, they've lost their source (for guidance). The risk that clients or consumers take by dealing with solo practitioners is huge.