CalSTRS officials are working on a program that would give plan participants access to registered investment advisers who would assist them in retirement plan investing as well as everyday investing.
The move is rare for retirement plans, consultants said. Public and corporate plan executives face several hurdles in creating such a program, including determining that the investment advice is unbiased and that advisers don't have conflicts of interest, the consultants said.
“We're still trying to sort things out,” said Ed Derman, deputy CEO of the California State Teachers' Retirement System, West Sacramento. “We want to make sure this is not just an opportunity for investment advisers to sell products.”
The proposed program calls for CalSTRS to select a list of advisers who must abide by “all regulatory requirements” and who must disclose fees, Mr. Derman said. CalSTRS will need to choose a consultant to establish criteria for selecting the advisers, but it hasn't issued an RFP yet.
“We are still developing the specifics of the program,” said Mr. Derman, adding that he hoped the program could be launched by the end of the year. “At this point, it's still in a conceptual form,” he said.
Plan participants would pay all costs for an adviser's services.
But the CalSTRS proposal would enable participants in the system's $222 million 403(b) plan to debit their accounts to pay for the investment services. Participants also may choose to pay from their own savings or investments, he said.
Participants in CalSTRS' $138 billion defined benefit plan would be allowed to use the advisers for personal investing, paying the costs themselves, he said.
Mr. Derman said CalSTRS officials discussed the registered investment adviser concept internally for more than 18 months before beginning “focused planning” in March.
“We have a broad mission,” he said. “We want our members to have a successful retirement.”
In April 2008, CalSTRS conducted an e-mail survey of participants, asking what services they would like. Among active participants, half of the 205 respondents said they wanted financial-planning information. “The answers really stood out,” Mr. Derman said. “They wanted somebody to help them.”
Investment consultants say that although company sponsored financial advice can be a perk for top corporate executives, an across-the-board service as envisioned by the CalSTRS program is much less common.
“The key challenge is to make sure the advice is unbiased,” said Lori Lucas, executive vice president and defined contribution practice leader for Callan Associates Inc., San Francisco.
Investment advisers accustomed to working with selected high-net-worth individuals might not be willing to work with larger numbers of people with modest nest eggs, said Ms. Lucas. Finding enough acceptable advisers could present difficulties, she said.
Some of her clients have backed away from implementing similar plans because of concerns over the quality of advisers, the consistency of advice and the reasonableness of fees, said Ms. Lucas, declining to identify clients. Concerns over potential conflicts of interest and over advisers' pushing their own products also played a role in discouraging clients from such a program, she said.
The CalSTRS concept “is not terribly common,” said Toni Brown, director of client consulting for Mercer LLC in San Francisco. She speculated such a program would be more popular with public DC plans than corporate ones.
“The biggest hurdles will be making sure participants get objective advice and that the advice is substantiated in investment theory,” Ms. Brown said.
