Technology Update

Tool aims to help DC plan participants make better decisions

Aug 19, 2012 @ 12:01 am

By Davis Janowski

This week's column is brought to you by Allianz Global Investors.

Don't worry. I don't mean that in an advertising sense but rather in the form of insights gleaned from a demonstration of the company's new PlanSuccess System — the online-tool portion, anyway.

To get full access to the tool and system, financial advisers must attend a two-day training program and obtain certification from Allianz's Center for Behavioral Finance.

“Behavioral finance is sort of the new thing with defined-contribution plans,” said Jamie Hayes, a partner and senior consultant at FiduciaryFirst.

Her firm works with employer-sponsored retirement plans, providing fiduciary oversight and investment advisory services, and she helped develop the tool.

Ms. Hayes, who specializes in issues involving the Employee Retirement Income Security Act of 1974, has 10 years' experience working in the DC arena. Her firm is an independent registered investment advisory shop that is dually registered with LPL Financial LLC.

“This is our niche, and this is all we do. Most of our business comes from DC plans,” Ms. Hayes said, noting that she has presented about 60 audits to clients and prospective clients using the new tool.

In a nutshell, DC plan participants and sponsors often make less-than-optimal decisions, based on emotional responses or a lack of understanding of the complex financial matters involved.

PlanSuccess' mission is to boost the behavioral health of DC plans, based on some of the theories of Shlomo Benartzi. He is the chief behavioral economist at the Allianz Global Investors Center for Behavioral Finance and a professor at the Anderson School of Management at the University of California, Los Angeles.


The long version of these theories is available in his book, “Save More Tomorrow: Practical Behavioral Finance Solutions to Improve 401(k) Plans” (Portfolio Hardcover, 2012).

“Save, save more, save smarter — those are the three key decision challenges our tool tries to address, and we match those three challenges with three key behavioral challenges participants face, which are loss aversion, myopia and inertia,” said Cathy Smith, co-director of the Center for Behavioral Finance.

In the end, the goal is to assess how a plan compares with three key success measures: participation health, deferral health and investment menu health.

“We have a series of goals, the 90-10-90 goals,” Ms. Smith said.

The first is to get at least 90% of the people working for a company into the company plan.

The second is to get participants to put at least 10% of their compensation into the plan each year.

The third goal is to have 90% of the participants invest their assets in a target date fund or other one-stop professionally managed portfolio.

The purpose of the online tool is to take the research that went into the book and turn it into a practical step-by-step process.

It begins with the adviser working with the sponsor to complete a behavioral audit — basically, an automated online wizard involving around 23 questions — about the plan.

There will be more questions for some, less for others; the tool has logic built in that will ask additional questions, based on some responses.

The first question: “What is the participation rate for your plan?”

Other examples:

“People have a strong tendency to focus on the short term and often have difficulty thinking concretely about the future. Do you offer specific tools to participants to help them envision their own retirements?”

“What percentage of plan participants are invested in default investment funds?”

“Does your plan offer a default investment choice for new employees?”

Based on the answers, the tool delivers a score in each key area and a tailored set of recommendations.

The next step is for the adviser and sponsor to take those results and implement improvements to the plan, measuring the impact over time.

None of the experts to whom I have spoken is aware of any other firm that offers what PlanSuccess does. To date, much of the industry relies on peer group benchmarking reports, and proprietary and public data, when comparing plans.


“We worked with [Allianz] to make sure the wording was appropriate and made sense to the advisers that would be asking the questions and filling out the tool's audit,” Ms. Hayes said. “Continuity is important because you cannot have advisers interpreting the questions or answers differently, and advisers need to be able to understand it to the point that they can articulate it to their client or prospect.”

The tool is intended for advisers working full-time with midsize DC plans, those with between $20 million and $100 million in assets.

Unfortunately, that universe is small, comprising about 500 advisers nationwide, at most, Ms. Smith said.

That means many of you are unlikely to gain access if you are doing DC advising on a part-time basis for smaller plans.

Given the lack of formal pension plans, it is a shame that a tool such as PlanSuccess isn't being made available to the masses. I encourage Allianz to do so.

Chances are good that advisers would pay Allianz for the training involved in use of the tool.

For advisers interested in a formal seminar in the use of the tool, a training program will be held on the West Coast in October. Thirty-one advisers attended East Coast training in June.

For others, Mr. Benartzi's book goes into detail on the tool's methodology, and advisers putting in some time should have no problem reverse-engineering their own process.

For more information visit the Allianz Global Center for Behavioral Finance online (I noticed they have a “Contact us” button at the site too btw). Twitter: @ddjanowski


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