A recent survey of defined-contribution sponsor-clients of the industry's most successful retirement plan advisers points to a straightforward conclusion: Amid this increasingly complex DC landscape, sponsors demand specialized expertise far beyond traditional investment advice.
The survey, conducted by Anova Consulting Group and BlackRock Inc., identified managing fiduciary responsibilities, plan design and understanding participant goals as the most important factors driving sponsors' satisfaction with their DC plan advisers.
The key lesson: A financial adviser outside the DC arena might think that supporting retirement plans is primarily an investment problem solved by the ability to pick funds. That isn't the case.
Getting plan participants ready for retirement is increasingly recognized as a savings, behavioral and fiduciary exercise.
That may pose challenges to advisers focused primarily on investment selection. But it also represents a considerable opportunity for those who can develop and deliver comprehensive retirement plan expertise directed squarely at helping sponsors shape a more satisfying, long-term outcome for their participants.
To understand that opportunity — as well as how sponsor expectations are setting the bar for existing and aspiring DC-focused advisers — let's consider how we got here.
In DC's early days, a key benefit promised to participants was the freedom to choose their own investments.
In practice, it wasn't necessarily a blessing. Few participants have the time, inclination and insight needed to sort through investment menus with dozens, even hundreds, of funds.
Experience, behavioral finance and the Pension Protection Act of 2006 have now encouraged a swing toward simplification. Freedom of choice remains, but default options — particularly target date funds — auto-enrollment and other automatic tools are helping nudge participants into smarter choices, better habits and, I think, more-successful retirement preparation.
But simplification has changed the game for advisers. Those serving the employer retirement plan market need to provide guidance on increasing participation and fulfilling fiduciary obligations, the differences among the many target date funds available, existing and emerging regulatory directives, and fee disclosures, among a host of other areas.
The BlackRock/Anova survey illustrates the “table stakes” that the best retirement plan specialists have established and also defines some key prerequisites for establishing a successful practice with a DC retirement plan focus.
Here are some highlights of what was found:
Plan sponsor satisfaction with top retirement plan advisers clocks in at 91%. The message is clear: It won't to be easy to win clients away from specialists.
Ease, ideas, value drive satisfaction. Frequent investment menu reviews are also key to sponsor satisfaction.
Fiduciary responsibilities rate high. Asked to rate the importance of adviser services, 60% cited investment menu selection, 47% said managing fiduciary responsibilities, and 42% mentioned understanding plan and participant goals.
Provider, record keeper impact minimal. Satisfaction with them has very little impact on satisfaction with advisers. Plan sponsors clearly understand the discrete set of services they expect their advisers to deliver.
Strong cross-sell opportunities. 41% of plan sponsors indicated an interest in investment advice for their participants, with 35% interested in retirement income solutions and 33% looking for financial planning services.
SPECIALIZE OR PARTNER UP
DC has continued to grow and evolve, becoming a discipline unto itself that increasingly calls for focused expertise.
Even questions about the investment menu revolve increasingly around selecting target date funds, which are available on nearly 80% of DC plans.
The message to advisers looking to work in the DC space? Either dig in to understand best practices, or actively seek out partnerships with retirement plan specialists as part of a cross-selling strategy.
Whichever path advisers choose, the opportunity is there for those who can deliver the guidance and service that plan sponsors value most today.
Chip Castille is managing director and head of BlackRock Inc.'s U.S. and Canada DC group.