What plan sponsors look for in a 401(k) adviser

They aren’t dissatisfied, but plan sponsors want more from their advisers.

A recent survey of plan sponsors by the National Association of Plan Advisors and The Plan Sponsor University found 53% are satisfied with their adviser and 55% are satisfied with the value they receive. But experts say sponsors now want even greater value — which can take the form of lower costs, more services or, typically, a combination of both.

For advisers hoping to win a new plan, experts say this means providing a detailed overview of the services that will be provided to plan officers and participants, and the benefits that each constituency will derive from those services.

Broadly, the areas where advisers are being asked to deliver more involve participant education, communications, investment reporting and investment results.

“In the most general sense, plan sponsors want advisers to help improve the outcomes for the plan’s participants,” said Jim Owen, managing partner at Global Retirement Partners, an organization for advisers who specialize in retirement plans.

EMPHASIS ON EDUCATION

As a result, he said, sponsors are placing greater emphasis on an adviser’s participant education program.

“Plan sponsors are finding that a lot of their employees are stressed out over finances, so we’re seeing more of an emphasis on advisers being able to provide financial wellness programs,” said Mr. Owen, whose group represents 120 practices with a minimum of $500 million in retirement plan assets.

Bobby Lumpkin, a principal of Capital Investment Services, a retirement firm serving 31 plans with $470 million in assets, agrees that education is “what it’s all about.”

“If advisers don’t educate participants broadly, especially younger participants, they are doing a disservice to the plan sponsor and society in general,” he said. “It’s not about charts or graphs; it’s about explaining in relatable terms the steps that lead to long-term financial success in life. There isn’t much of that education going on today.”

If participant-oriented communication requires a focus on education, communicating with plan sponsors requires touching other bases.

On a basic level, sponsors simply want advisers to be responsive. The recent NAPA/TPSU survey, for example, found 24% of sponsors switched advisers because of unresponsiveness and advisers not being helpful with critical services.

At a minimum, investment committees at plan sponsors want regular quarterly meetings with the same adviser, said Ariana Amplo, founder of InHub, an online technology that assists plan sponsors in conducting requests for proposals for retirement plan advisers.

Plan performance is the obvious subject of those meetings, but plan officers “also expect advisers to keep them apprised of developments in the economy and markets generally so they can focus on their full-time jobs at their companies,” said Mr. Lumpkin, who notes that plan sponsors want advisers who can help them become better stewards.

“The sponsors also want advisers to communicate a data-driven rationale for their actions,” he said. “Plan sponsors need to be sure that the funds being chosen are the result of a methodology that can be tracked and followed quarter to quarter. It takes out the subjectivity of the past, and helps make sure that the investment process is tied to the policy statement.”

Since investment selection and monitoring, at 37%, are what plan sponsors value most in an adviser, according to the NAPA/TPSU survey, this emphasis on investing makes sense.

Mr. Owen said Global Retirement Partners is launching a series of collective investment trusts, a bank-run structure that has come in and out of favor over the years, but is attracting interest now because of its low costs.

While the experts say plan sponsors are mindful of adviser fees, cost doesn’t seem to be the major concern.

“Most plan sponsors aren’t interested in the cheapest adviser; they want quality,” Ms. Amplo said.

And once all costs are identified and explained in dollar terms, and the plan’s officers see the services they are receiving, they usually come to understand that the adviser’s fee is reasonable, Mr. Lumpkin said.

Evan Cooper is a freelance writer.