Last week, during my training to be an assistant teacher in the Vipassana meditation tradition, the five qualities of a good teacher were discussed, which seem relevant to those of a good advisor.
The five qualities of a good advisor include:
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Understanding who you are speaking to and adjusting how you work with them. The ocean is very shallow at the shore but gets deeper as you wade in—never go deeper if the person is not ready or capable. Meet them where they are, which undoubtedly will change over time.
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Be compassionate and kind. Most people are not prepared for retirement and can be embarrassed. Many deal with difficult work, health, relationship and life issues, which need to be considered and addressed with compassion. Otherwise, the person will not be open and forthcoming, not just with more data but also with their situations, which will not lead to a more expansive relationship.
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Vipassana teachers are not allowed to accept any material compensation, which obviously does not apply to RPAs. However, a good advisor is motivated first to help or serve, not make money, while charging a reasonable fee, which is required under ERISA.
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Finally, advisors should never take actions that will harm a client even if that client is abusive, difficult or non-responsive. Reacting with compassion toward those people will often change the situation, and even if it does not, the advisor is not causing further harm. Additionally, when angry or frustrated, we first must harm ourselves so being kind in difficult situations is actually benefiting us.
Retirement plan advisors’ job is different and more challenging than a wealth advisor. There are three entities who must be educated and served:
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Participants/employees
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Administrators
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Senior management
Each has their own needs and issues that need to be addressed separately and differently. Unlike wealth clients, most participants in 401(k) and 403(b) plans are unsophisticated, knowing little to nothing about investing, let alone saving for retirement. Most administrators have little to no training with dwindling resources.
Additionally, defined contribution plans under ERISA have the highest fiduciary liability known to law in the world, according to a 1982 court case, which can pierce the corporate veil and put advisors under increased scrutiny and liability.
Essentially, advisors need to move from being a fiduciary, which is rules-based, to being a steward. Here’s a good comparison generated by artificial intelligence:
Just as it took time for RPAs to move from commission-based brokers to fiduciary advisors, it can take time to become a steward, and the timeline will vary not just with that advisor’s volition but also with experience and emotional maturity.
As the DC industry moves from plan level to participant services, new skill sets and financial models must also be developed, and this is true for financial advisors accustomed to working with wealthier, more sophisticated clients. Enabled by tech and AI as well as a crop of financial coaches, new models will need to be developed to work with the estimated 94 million active DC participants with 90%-plus without an advisor.
Most important, a good advisor will have, develop and rely on their intuition, enabling them to work with each client depending on their needs, situation and level of understanding. Beyond education, guidance and even advice, the DC industry is moving to “doing it for the participant.” Ultimately, it would be best if they could teach them to do it themselves, like the perhaps overused but apt analogy: “Give a person a fish and you feed them for a day; teach a person to fish and you feed them for a lifetime.”
This outcome takes time and compassion and may not be realized for everyone, but it is a good North Star. And it will only be developed by advisors acting as stewards.
