Over the past two years, the number of retirement plan sponsors shopping around for a new plan adviser has nearly doubled, according to Fidelity research. Many wonder what would prompt them to do that — especially since Fidelity also found 80% of plan sponsors are working with an adviser and their satisfaction is high. This dichotomy has advisers asking what they can do to both keep and expand their books of business.
By way of explanation, Jordan Burgess, senior vice president, specialist sales for Fidelity Institutional Asset Management, says that the Department of Labor’s fiduciary rule “accelerated awareness that was already working its way into the system with plan sponsors.” This alerted plan sponsors that they needed to pay attention to their 401(k) plans. When they did that, they had three concerns: the cost of their plan, their fiduciary responsibility and whether or not they were adequately preparing employees for retirement, Burgess says.
Because so many plan sponsors have questions about their plans, it has driven them to look more closely at their plan advisers and what services they are providing to their workplace retirement plans. Their top reasons for switching advisers are that they want someone more knowledgeable about regulatory changes, is able to help them with their fiduciary responsibilities, will focus on improving plan performance and help minimize plan costs.
“As knowledgeable advisers gained more market share, they were ratcheting up the expectations of plan sponsors in conjunction with their DOL awareness that shakes out the non-specialist adviser,” Burgess says, referring to those who only manage a handful of plans. “Now, we’ve got specialist advisers asking all the right questions when prospecting for new plans and defending the ones they’ve got and it raises the game. It creates a competitive environment.”
In a 2017 survey, Fidelity found that 71% of plan sponsors had been solicited at least once during the course of the year by a specialist plan adviser and 55% of those who were solicited said the encounter piqued their interest.
These specialist plan advisers are telling plan sponsors they will take a hard look at their plan funds, act as a fiduciary and cut their plan fees. “They are redefining the service model at the next level of detail,” Burgess says.
Plan sponsors evaluate advisers based on the value they deliver, says Burgess. “We know that plan sponsors are checking on their advisers; 72% evaluate them annually or more.”
Plan sponsors want to know if advisers are giving them the value they want, a good investment lineup, helping the plan with its fiduciary responsibilities and helping the plan remain in compliance with regulations.
Becoming an activist
The best thing plan advisers can do to keep their current clients and solicit new ones is to become activists on their own behalf. First, they need to clearly communicate to their clients the services they offer and the value they have delivered throughout the year.
“The ones with the best retention rates take time to write down and formally communicate to their plan sponsors on a regular basis,” Burgess says.
The communications should include how much time was spent reviewing investments and making changes on a quarterly basis; any suggested changes to the plan menu; any benchmarking that was conducted that compares plan costs to other plans of the same size, demographics and industry; and what their focus has been on improving outcomes, like plan design changes and investment options that get people closer to their targeted savings rate to retire on time. They also should mention if they added a target-date fund option to help those who don’t want to make a ton of decisions.
If an adviser isn’t an expert in any of these areas, but wants to try to compete for business, the best way to do that is to partner with those who have the skillsets needed. Independent advisers could sign on with a firm that has a centralized research team that is watching 200 funds and could help them be on the 3(21) fiduciary list; or they could partner with a registered investment adviser who could help them be the 3(38) adviser for the plan.
3(21) fiduciaries give advice on investments that could be included on a retirement plan menu, but ultimately it is the plan sponsor’s decision whether or not they take that advice. A 3(38) fiduciary is one that takes full fiduciary responsibility for the investment decisions made on behalf of the company retirement plan.
“Activism in general is up. Competition is up and that’s probably good for plan participants, good for plan sponsors and creates good service models that are constantly being revised by advisers and record keepers. That competition creates value,” Burgess says.
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