The Department of Labor’s final fiduciary rule, which will go into effect next year, changed the way plan sponsors view their fiduciary responsibilities.
Fidelity Investments’ Seventh Annual Plan Sponsor Attitudes study found that plan sponsors are taking their fiduciary duties much more seriously, with 38% of surveyed plan sponsors saying they are concerned about their fiduciary duty, a 14% increase over last year.
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“A 14% jump in a year is a significant move,” says Jordan Burgess, head of specialist field sales overseeing defined contribution investment only (DCIO) sales at Fidelity Institutional Asset Management. He points out that most plan sponsors are interested in an adviser helping them with plan investments or to help them understand how the plan is working for employees, but this is the first year fiduciary duty became the most important reason to have a plan adviser.
Eighty-seven percent of plan sponsors use a financial adviser or plan consultant, the survey found, and advisers are doing a very good job so plan sponsor satisfaction with their advisers is at an all-time high (72%), he says. The number of plan sponsors who felt they were getting a good value from having a financial adviser/consultant involved in their 401(k) plans also rose to an all-time high of 66%.
“We had all-time highs in ‘satisfaction’ and ‘do you get good value.’ What is more interesting is on the other side of the ledger; the percentage of plans looking to change advisers,” Burgess says. “Twenty-three percent of plans in the survey said we plan to switch advisers. That is from a low of 10% in 2013. That’s pretty interesting. ‘We’re very satisfied.’ ‘We get good value.’ ‘We’re going to switch.’”
Burgess believes the contradictory message is a direct result of retirement plan advisers not being more forthcoming about all of the things they do for their retirement plans. A plan may have the most knowledgeable plan adviser in the world, but if that adviser is not telling the company all the wonderful things they are doing for the plan, the company may decide to switch advisers when presented with someone new who says they will do all of these great things for the plan.
Because of the regulatory changes affecting defined contribution retirement plans in the past couple of years and numerous studies showing that employees are delaying retirement because they don’t feel they have saved enough to retire comfortably, it is even more imperative for plan sponsors to hire a knowledgeable plan adviser.
So what is a knowledgeable plan adviser? Burgess says that they offer suggestions for improving plan performance, consult on plan design, help manage fiduciary responsibilities, monitor investment options, minimize costs and provide the plan sponsor with regulatory updates.
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“The hypothesis here is these knowledgeable advisers have done a good job. They perceive good value because they have done a good job. They are raising the game on themselves. That is probably good for the industry and participants in terms of retirement outcomes over time,” Burgess says. “It has just become a very competitive marketplace.”
One of the most exciting things to come out of surveys like Fidelity’s — which surveyed plans that use a number of record keepers, not just Fidelity — is that there has “been a fair amount of activity and change that has taken place over the last few years,” he says.
Have plan sponsors, record keepers and advisers implemented changes when plan participants expressed concern about retirement readiness? The answer is yes. Eighty-six percent of plan sponsors in the Fidelity survey made a change in the past two years. “The top three reasons for that change are really important things: improving coverage, increasing savings rates and improving expenses,” he said.
The adviser continues to be the No. 1 influencer of plan sponsors in terms of making changes to a plan’s investment menu or plan design; however, “we’ve seen an increase in importance of the record keeper and the adviser working together so we are encouraged to see that,” Burgess says.
A third party independent research firm surveyed 976 plan sponsors for this study. Of those, 849 plans already use a plan adviser or consultant. Plans ranged in size from 25 to 10,000 participants and up to $100 million or more in assets under management.
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