Advisers struggle to get 401(k) plan, participant data from record keepers

Advisers argue they need to see participant information to do holistic planning and be fiduciaries

May 21, 2017 @ 12:01 am

By Fred Barstein

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There is a fight brewing between defined contribution record keepers and advisers over access to plan and participant data which could determine the fate of retirement security for Americans. Without access to plan and participant data, advisers, broker-dealers and RIAs will have limited ability to help workers in DC plans maximize retirement savings.

So what's at the heart of the fight? Margins on DC record keeping are thin, so more providers are trying to sell proprietary products, whether professionally managed investments like target-date strategies or managed accounts, or capital preservation investments like stable-value funds. Some providers with a consumer brand like Fidelity, Vanguard and Schwab see opportunities with IRA rollovers. One large retail bank DC record keeper told me recently they own the data and advisers will have to pay to get access to it.

But even those record keepers willing to cooperate are reluctant to share data because of security concerns. Along with information about salaries, account balances and investments, record keepers have access to Social Security numbers. Imagine that data in the wrong hands.

Technology is another problem, according to Babu Sivadasan, group president of Envestnet Retirement Solutions. Many record-keeping systems are 30 years old, and it's hard for these providers to export data in a consistent format. The market is mature, and the return on upgrading systems is not worth the return, at least short term.

STANDARDIZE DATA

Backed by the Investment Company Institute, the SPARK Institute and the American Retirement Association, the Depository Trust & Clearing Corp. manages an initiative to standardize DC plan-level data called Retirement Plan Reporting. So far, that initiative has yielded very little and is only providing plan-level data, not solving technology or security issues.

Fred Barstein

According to Randy Long, managing principal at SageView Advisory Group, which has $70 billion in DC assets, advisers need data to show their value as well as improve participant outcomes. He needs to understand how well his advisers are doing with automatic features as well as asset allocation, which ultimately will affect income replacement ratios, the real-life measuring stick for plan advisers. Of the top 10 record keepers SageView works with, which manage 80% of their plans, half are sharing data while the other half are willing to share. Some are unable to share now because of security concerns or technology issues.

Advisers will need data more than ever with the DOL conflict-of-interest rule making it essential to determine if it's appropriate for investors to roll over their DC assets into an IRA or leave it in the plan. Mr. Long noted that managed accounts outperform target-date funds and his advisers need to incorporate outside assets to develop holistic financial plans.

Mr. Sivadasan goes further, asserting that advisers cannot fulfill their fiduciary obligations without access to record-keeper data and ultimately outside assets. Like doctors, DC plan advisers need to have as much information to prescribe the right treatment. It's not enough for doctors to say that they followed the rules — they ultimately will be held accountable for the health of the patient just as plan advisers are responsible for outcomes.

So if advisers and their broker-dealers or RIAs had access to uniform plan and participant data on record-keeping platforms, as well as outside assets, their job would be much easier and outcomes could dramatically improve. According to Mr. Sivadasan, advisers would benefit from integrated, wired workstations with daily updates provided by plan, participant investment and provider.

But the fight for data is holding back progress as a result of competitive concerns and, mostly, security and technology issues. Mr. Sivadasan said that 80% of broker-dealer data aggregation issues have been solved, but issues remain with RIAs, many of whom are not tracked on record-keeping systems. Perhaps the DTCC initiative will bear fruit, or more likely the solution will come from large private entities.

Advisers need to play their part by pushing DC record keepers to share data, rewarding those that do and moving business from those that will not.

Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University.

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