With the SECURE Act clearing the House of Representatives this afternoon and headed to the Senate for a vote as part of a legislative package to fund the federal government, investment advisors and the financial services industry are likely to have a treasure trove of new opportunities to unpack for the holidays.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which President Trump is expected to sign into law before he departs for Mar-a-Lago for Christmas break, is the most comprehensive retirement security legislation in more than a decade.
Of special note to advisors, the bill makes it easier for employers to offer lifetime income annuities to employees. Specifically, the bill removes a requirement that previously required employers to assess an insurer’s ability to make payments years down the road. The SECURE Act allows employers and their consultants to instead rely on financial evaluations by insurance commissioners.
The Role Of Advisors
Since the question of what to do with a retirement plan drives at least some investors to hire their first advisor, what happens if a lifetime income annuity makes a 401(k) rollover less necessary?
“Obviously, you can look at this as a challenge for advisors, but I look at it as an opportunity,” said Melissa Kahn, the managing director for retirement policy at State Street Global Advisors.
“There will absolutely be a very important role for advisors. There’s a steep learning curve with annuities for both plan sponsors as well as participants,” she said.
“Plan participants report they don’t understand annuities and think they’re too expensive and that they lose control. I think advisors will continue to be very important from the education point of view.”
To the extent that an annuity will only be part of a participant’s qualified plan, “advisors will have to help them structure the portfolio,” she added. “I think that advisors will play a very important part overall, but even more with longevity annuities. I think it’s an opportunity and not a challenge at all.”
Advisor Dan Moisand, of Moisand Fitzgerald Tamayo in Melbourne, Fla., said he’s not concerned about the implications of the act on retirement plans, beyond the preservation of advisors’ fiduciary conduct, the policing of distributor behavior and the quality of the products. “Financial planning is far broader than 401(k) rollovers,” he said. “The added choice may even increase demand for objective and accountable fiduciary advice.”
While the SECURE Act requires that all 401(k) plans include a lifetime guarantee annuity as an investment option, the products are required to be portable and without surrender charges when an employee either changes jobs or retires.