Going beyond a traditional adviser-plan sponsor relationship
The fear of not having enough money for retirement continues to be a big worry for many Americans. A March 2016 study, Don’t You (Forget About Means): Third Biennial Study on the Retirement Readiness of Generation X, published by the Insured Retirement Institute, found that less than one-quarter of the Gen X population is confident that they will have enough money in retirement. Almost all employers say their retirement plans have participants who are putting off retirement for those very reasons.
However, plan sponsors are not sitting on their hands — many of them are making plan design and investment menu changes to help participants meet their retirement goals. For plan advisers, the willingness of plan sponsors to take action could present a tremendous opportunity to add value and ease concerns over the rising numbers of employees who are delaying retirement.
“How can we get the best adviser?”
Being able to demonstrate value is more important than ever, even though — by most metrics — advisers to retirement plans are doing an excellent job. Plan sponsor satisfaction with the advice and value they receive from their advisers has never been higher, according to Fidelity Investments’ 2016 Plan Sponsor Attitudes study. Yet, almost a quarter of plan sponsors have also indicated that they are looking around for another adviser.
It’s not that they’re dissatisfied with what their current adviser is providing, but with the retirement landscape changing in the face of the Department of Labor’s fiduciary requirements, sponsors are asking themselves, “Do we have a regular due diligence process on our adviser? Am I working with the most knowledgeable adviser out there?”
Increasingly, plan sponsors are seeking advisers who are experts not only in investment, but also retirement. This trend is accelerating, and plan sponsors understand the value of a specialist adviser who goes beyond investment selection and monitoring to consult on plan design, plan performance and participant outcomes. These are advisers who have found ways to engage their clients more effectively, getting closer to them by zooming in on the issues that matter most to plan sponsors.
How plan adviser specialists can help
The basics are important: Plan sponsors lean heavily on their advisers when it comes to selecting investments. In gauging investment performance, plan sponsors are becoming more sophisticated. Virtually all sponsors review their plans’ investments annually, using metrics such as performance against a benchmark and alignment with stated plan risk parameters. According to Fidelity’s 2016 Plan Sponsor Attitudes study, 87% of sponsors have made changes to the investment menu in the past two years, a process which can strengthen the adviser-sponsor relationship.
On top of investment expertise, plan advisor specialists should look to add value for their clients in these areas:
- Providing fiduciary support: According to Fidelity’s 2016 Plan Sponsor Attitudes study, the No. 1 reason plan sponsors hire an adviser is a concern about their fiduciary responsibilities. To address this need, advisers should consider a proactive approach in helping plan sponsors understand their fiduciary responsibilities.
- Improving plan design: Advisers must also consider working with plan sponsors on maximizing participation among employees. One of the ways to do this is to make design changes to the plan, including using features such as auto-enrollment and employer match. Advisers can also foster a strong three-way partnership with the plan sponsor and recordkeeper that helps to simplify plan administration.
- Setting up a retirement income replacement rate goal: Working with the plan sponsor, the adviser can set a retirement income replacement rate goal for participants and then design a plan that aligns with this goal. Fidelity believes that a retirement income replacement rate goal from assets should be about 45% of participants’ final salary, if they don’t have a pension. Once the plan is implemented, the adviser can monitor, document, communicate and report on the participants’ collective progress.
The fear factor around retirement for both plan participants and sponsors is running high right now. And it’s an ideal time for specialized retirement plan advisers to show their value by touching base with their clients regularly to review plan design, investment menus, and overall satisfaction. This is how specialist advisers can differentiate themselves and help plan sponsors and participants achieve better retirement outcomes.
The content provided herein is general in nature and is for informational purposes only.