CHICAGO — According to a new white paper, although 83% of plan sponsors who used financial advisers were very satisfied with them, 42% of surveyed sponsors didn’t even use one.
That creates a huge opportunity for advisers, said William O’Grady, senior vice president of distribution and national sales for the retirement services division of
MassMutual Financial Group and co-author of the white paper, “The Successful Retirement Advisor: Quantitative Research Analyzing Plan Sponsors’ Needs and Experiences.”
MassMutual Financial Group is the marketing name for Massachusetts Mutual Life Insurance Co., based in Springfield, and its affiliates.
The research for the white paper, completed in February, was conducted by telephone in August among senior retirement benefits executives at 352 companies sponsoring 401(k) plans with assets ranging from $10 million to $300 million.
Sponsors more demanding
The analysis showed that advisers need to understand that demands from plan sponsors are increasing, and they need to provide more meaningful service to sponsors. Advisers should assume the quarterback role and take care of every aspect of the retirement plan for employers, Mr. O’Grady said. Even advisers who work with smaller plan sponsors can mimic what advisers are doing for larger plan sponsors, because plan sponsors in small markets eventually will start to demand the same services.
“Advisers who are smart will take lessons learned from upmarket and apply those same lessons to small markets,” Mr. O’Grady said.
For instance, many advisers in large markets are already focusing on fiduciary issues for their clients, as well as providing investment policy statements and fee transparency. Advisers in small markets who follow those practices will win more business, Mr. O’Grady said.
The analysis indicated that plan sponsors were approached by competing advisers an average of nearly four times a year. The white paper also indicated that one in six plan sponsors who used an adviser had taken the initiative to contact other advisers.
“The bottom line is that this is a competitive market, and advisers must maintain good relationships with their clients or risk losing the business to another adviser,” the paper said.
Of the plan sponsors who didn’t have advisers, six in 10 agreed that advisers could help them shop for a provider for their plan, but 59% believed that they had the skills and knowledge to manage their plan on their own.
That’s why it’s so important that advisers prove their worth to plan sponsors, said co-author Steve LaValley, second vice president of marketing at MassMutual.
“The challenge for advisers is to put a value proposition on the table and help sponsors understand what’s on the table,” Mr. LaValley said. “It’s getting past that perception that says, ‘I can do this myself.’”
In a list of reasons why plan sponsors fire their advisers, 88% cited a lack of technical proficiency in 401(k) matters, 79% cited being vague about fees, 77% cited excessive fees, and 76% cited failure to respond to requests promptly enough.
That’s evidence that plan sponsors demand more from advisers and that the industry has become highly specialized, said Dick Darian, an executive vice president for Capistrano Beach, Calif.-based National Retirement Partners.
Exodus predicted
He predicted that many advisers will leave the retirement plan business. Advisers face more risk because they have to take on more fiduciary responsibility and are receiving less compensation as the margins have narrowed.
“I think there will be plan sponsors saying: ‘I only want to do this with people who do it for a living.’ You’ll see less one-hit wonders, and smaller advisers who dabble will go away,” Mr. Darian said.
But advisers who work closely with plan sponsors and who have become experts in the field will succeed, he said.
“Not all advisers do a good job. You’ll see tremendous turnover of advisers,” Mr. Darian said. “It will move toward advisers who are experienced and will take risks to do everything for plan sponsors.”
Lisa Shidler may be reached at lshidler @crain.com.
