DC plan advisers reducing the number of provider recommendations

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Financial advisers have a lot of pull when it comes to helping employers select a defined contribution plan provider.

Research by Cogent Reports found that defined contribution plan advisers are reducing the number of providers they recommend to clients. The average is just 2.2 plan providers, but 39% of the 508 plan advisers surveyed said they only recommend one plan provider. That is up from 32% in 2015. To participate in the survey, advisers had to be actively managing DC plans and had to be established, with at least $10 million in assets under management.

“With nearly four in 10 DC advisers recommending just one provider, achieving that coveted spot on advisers’ recommended list has never been more daunting. As such, knowing which consideration drivers to leverage and understanding DC advisers’ brand perceptions have never been more vital,” says Sonia Sharigian, senior product manager at Market Strategies and author of the report. “Moreover, the implications of securing a spot on DC advisers’ consideration sets can be huge — as these advisers work with an average of just 2.6 plan providers across all of their DC business.”

When asked what providers can do to gain an adviser’s consideration, respondents said that companies have to be easy for advisers to do business with.

“They are looking for seamless partners in their day-to-day operations and business and [companies that offer] the best value for the money, which is another critical brand differentiator,” Sharigian says.

Companies that are easy to do business with typically are very responsive when an advisor or participant calls with a question. They also offer easy-to-use platforms that provide numerous services and support options. Advisers want to promote plan providers that are a good value because, as fiduciaries, they want to make sure they are passing on as much savings as they can to their clients, but they also don’t want to compromise on service and performance, she says.

Offering strong fiduciary support is another way plan providers can gain an advisor’s consideration. These responses mirrored those reported among DC plan sponsors earlier this year.

“The fact that these consideration drivers are similar across both audiences is a testament to the level of influence retirement plan advisor recommendations have in the DC market,” adds Linda York, senior vice president at Market Strategies. “Notably, only a handful of providers, including American Funds, Fidelity, Vanguard and John Hancock, are strongly associated with these key attributes. Challenger brands need to find another niche if they hope to break the hold of these dominant market leaders.”

According to Cogent Reports, American Funds, Fidelity Investments, John Hancock Financial Services, Vanguard and Principal Financial Group were the easiest companies to do business with. Vanguard, American Funds, Fidelity Investments, ADP Retirement Services and John Hancock Financial Services were the top five companies that offer the best value for the money, according to the Cogent survey.

Plan participants also have an influential role in determining what plan providers offer, Sharigian says. They want the best value for their money and they want to know that whomever they are working with is trustworthy.

Many DC plan participants want to be able to take a more active role in their workplace retirement plans. Because of that, it is important for plan providers to have strong websites and strong online features.

“Those service and support offerings are very key,” she says.

Sharigian adds that if plan providers are fortunate enough to become go-to providers for plan advisers, they should want to maintain that position and maintain their excellent service and support. Repeat business is very important so once you have that customer it is important to cultivate that relationship and make sure it is bullet proof for future opportunities.

“There are a lot of options out there. In our study, we look at 34 of the leading plan providers so there are a lot of smaller plan providers vying for market share and top-of-mind presence wherever they can. The bigger firms can’t rest on their laurels. There’s a lot of competition out there,” she says.

There are a variety of forces at play in the retirement plan adviser market, including technological advances, the tightening of fiduciary regulations and demographic shifts among the advisers themselves, she said. Many advisers are retiring and fewer new advisers are coming into the field. There has been consolidation in the retail market that has spilled over and affected the DC market. There has been some brand consolidation and that is why the number of plan providers that an adviser will recommend has narrowed.

“It is becoming more competitive and for plan providers and DC investment managers, it is increasingly important to understand all drivers of consideration, satisfaction and loyalty,” Sharigian says.

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