AUSWR
The Association of U S West Retirees
 

 

 

Pension Problems? Not For Brokers
By Tom Van Riper
Forbes.com
Friday, February 17, 2006

NEW YORK - For decades, the army of stockbrokers at St. Louis-based Edward Jones & Co. built most of its clientèle by knocking on doors and relying on referrals from satisfied customers.

But while still going strong, that method is quickly taking a back seat to a new prospecting wave that allows many of the firm's 8,700 brokers to see hundreds of potential clients in one shot.  Nervousness over America's corporate pension woes has sparked demand for seminars aimed at educating employees on retirement financing options.  Edward Jones became so overloaded with seminar business that it recently set up a separate in-house function to coordinate them.  Its brokers have pitched to 685,000 people over the past two years, according to Ken King, principal of the Employee Education Program.

"We're activating relationships that otherwise wouldn't have been there," King says.

While scrutiny over biased stock research a few years ago may have been a scourge to stockbrokers whose business depends on client trust, the growing apprehension over corporate pensions has been a godsend.

Business is booming for those financial planners big and small able to tap into the growing market of workers who are no longer confident of trusting their retirement to their employers.  And it's not just people at old-line companies with legacy, defined-benefit pensions.  Even those whose plans are doing just fine are concerned about the trend, leading them to flock to financial planner's offices for advice and, in many cases, to open a private account.

"The rank and file public doesn't make the fine distinction between pension, profit sharing, 401(k);  they hear pensions are in trouble and worry about their own," says financial planner Joseph Birkofer of Legacy Asset Management in Houston.  "People ask, what is the PBGC [Pension Benefit Guaranty Corp., the U.S. government's pension bailout fund], does it back up my 401(k) plan?"

It doesn't, which can lead employees with that type of plan to worry about their employer's ability to keep matching contributions.  That's particularly true if a company has recently been slashing pay or laying people off.  Meanwhile, those cashing out of a defined benefit plan are signing up with planners and brokers, seeking advice on decisions like whether it is better to take a lump sum or an annuity payout.  Financial education seminars, while not new, are hotter than ever.

"We've seen a huge upswing in demand for advice," says Birkofer, a small independent who has brought in 11 clients investing $500,000 or more over the past year.

Pension Benefit Guaranty Corp. statistics show that the number of private sector defined benefit plans in the U.S. has plunged to 30,000 from 112,000 since 1985.  Assets in defined-benefit plans -- plans that promised a certain payout on retirement -- have dropped to under $1.8 trillion from $2.1 trillion in 1999, according to the Employee Benefit Research Institute, despite rising asset values over the same period.  EBRI notes that almost two-thirds of private sector retirement assets are now held in defined-contribution plans, which specify only the funds contributed now, not a retiree's payout. And a recent study by benefits consultant Hewitt Associates shows that only 38% of U.S. employers plan to offer a defined-benefit plan by the end of 2006, compared to 83% in 1990.

Some seminars are designed to educate employees on plan switches -- usually to a defined contribution from a defined benefit setup.  Others are geared to those withdrawing money from company plans to invest on their own, fertile ground for a financial adviser.  And the opportunity to present your goods to hundreds of prospects at a time beats cold canvassing or word-of-mouth referrals any time.

"It's created an opportunity to have a conversation; more of our financial consultants are looking at this market," says Ed O'Neal, vice president of the retirement plan group at A.G. Edwards.  He estimated the company put on 10% to 15% more seminars over the past year than the year before, as the environment has created opportunities for the salespeople to contact plan sponsors and employers to help secure captive audiences.  But brokers are not limited to using the issue to opening new accounts.  Many see pension troubles as a way to expand their reach into their current clients' finances.

"Some have had these people on their books for years and never talked to them about [retirement money] before," O'Neal says.

Over at Ameriprise, the financial services group recently spun off from American Express, pension changes are improving closing rates for new accounts by as much as 50%, according to Rusty Field, the company's vice-president of financial education and planning services.  The unit drums up business both by helping employers implement new plans, and by giving employees who are withdrawing money a place to invest.

King of Edward Jones, meanwhile, says that while the firm was already putting resources into steadily growing its seminar business, the accelerating problems in the defined benefit pension world "is definitely the driver now."

Indeed, more and more people are deciding that their company pension is something that needs to be diversified against, with many wealth managers advising those whose pensions have done well so far to get out at the top and spread the money into a mix of stocks, bonds and mutual funds.  And for those already hurt, desperation to minimize losses has them knocking down the doors of financial planners and brokers they hope can help salvage some of their retirement funds.

Rebecca Pace, a former Wachovia rep now in private practice in Cincinnati -- a Delta Air Lines hub -- says about 25% of her calls over the past year have come from airline families who are scared stiff.

"More clients are concerned about their pension benefits, which is prompting them to call," Pace says.  "This makes it ever more important to people to be proactive about accumulating assets and to craft a financial plan as a roadmap to manage their own secure retirement."

http://www.forbes.com/2006/02/16/pension-retirement-planning-cx_tvn_0216pensions.html?partner=daily_newsletter