Anthony Podogil, Partner at Cedar Brook Financial Partners in Financial Advisor IQ Article on Public-Sector Workers

Public-Sector Workers Are an Opportunity for Advisors

Article published on November 14, 2013

By Paul Hechinger

Mark Mitchell, a police officer-turned-financial planner, says advisors should understand one major difference between public- and private-sector clients. “In the public sector, many of us didn’t take our jobs for the pay,” explains Mitchell, who manages around $50 million worth of assets at Retirement Plan Advisors in the Detroit metro area. “Many of us who chose public-sector work did so for the benefits.”

That’s what makes these times so devastating for thousands of police, firefighters, teachers and other public servants. States and municipalities, plagued by budget deficits, have radically fewer funds to pay the pensions and postretirement health care benefits their employees were counting on. Federal workers are vulnerable too, as the recent debt standoff proved.

In the good old days, these employees had little use for financial advisors, as their defined-benefit packages didn’t leave room for choices. Workers put in their time, retired and cashed their checks. Today, those plans are shrinking, increasingly supplemented by defined-contribution plans. As their financial challenges for retirement look more and more like those of private-sector workers, public servants have a crying need for advice.

That’s why Mitchell, who got his life insurance and Series 7 licenses while he was still on the force, started in the profession in the late 1980s. He had watched his father, also a former police officer, grapple with a retirement plan that seemed to change shape before his very eyes.

When the city of Detroit filed for bankruptcy last July, Mitchell says he fielded dozens of calls from his clients, 90% of whom he estimates work in the public sector. Their own retirement contributions are safe, protected by federal regulations. But their DB pensions and health benefits now depend on how the bankruptcy proceeds. “If the bankruptcy judge says that the retirees are going to have to settle for cents on the dollar, there will be thousands of people affected,” he says.

Mitchell is hoping for the best, but telling clients to prepare for the worst. Some might have to relocate, he says, or work longer than they planned. “They might have to go into a survival mode rather than a luxury mode,” he says.

Edward Zurndorfer of EZ Accounting and Financial Services in Silver Spring, Md., who says that more than half of his clients are federal employees, had to do some hand-holding during the recent government shutdown. “A few [clients] called me up and asked how they were going to pay their bills,” said Zurndorfer, a former federal employee himself.

Boost for Business

The shutdown was one more example of uncertainty in federal workers’ financial lives. When Zurndorfer started working for the government in the early 1970s, he was guaranteed a full defined-benefit pension package, including health care. As an employee, he had to make very few decisions. Now, public-sector employees are choosing among lists of mutual funds just like other 401(k) participants. “And where do all these employees turn to make all these choices?” asks Zurndorfer, who has just $2 million in assets under management because his firm does mostly tax planning. “They go to financial planners, accountants and attorneys to get their questions answered. This is what has really enhanced my business.”

Anthony Podojil, partner at Cedar Brook Financial in Cleveland, Ohio, is a former school superintendent who became an advisor three years ago, in part because he needed a planner himself and couldn’t find one who understood his needs.

His clients’ challenges stem from recent changes in Ohio’s pension-eligibility requirements. Formerly, public employees could retire with full benefits after working for 30 years, regardless of their age. Now, they must work until they reach age 60, no matter how many years they’ve put in. Podojil, who has $2 million in assets under management, says he’s having “deep conversations” with people in their 40s who thought they could retire in their early 50s. Now they must rethink their whole financial lives.

Podojil sees financial planning as an extension of his work in teaching. “I just took one hat off and put it right back on,” he says. “I’m just educating people in a different way.”

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