Plan sponsors to advisers: More, more, more

Even on the small retirement plan front, plan sponsors expect advisers to ratchet up the services they provide to employers and workers. Such were the findings of a study recently unveiled by Cogent Research LLC. The survey of 1,500 employers revealed that sponsors of small plans ($5 million to $20 million in 401(k) assets) and those at micro plans (less than $5 million in assets), want more face time and effort from financial advisers. While 80% of small plan sponsors said they were most satisfied with the work advisers do on general plan design and monitoring recommendations on plan investment options, there was room for improvement in other areas. Only 61% of small plan sponsors, for instance, indicated they are satisfied with the job advisers are doing on monitoring other consultants to the plan. About the same percentage said they were happy with the way advisers are monitoring plan provider fees. And less than seven out of 10 said they were content with how advisers are educating participants on plan and investment options. The findings suggest that the days of 401(k)s being a side business for financial advisers are over. Plan sponsors want a bigger bang for workers' bucks. “The end goal of these 401(k) plans is to help individuals save adequately for retirement,” said Linda York, vice president, syndicated division at Cogent. “From the employee standpoint, there are a lot of best practice approaches the advisers can encourage. Setting an adequate savings rate is good, but they can also make sure you're maximizing your contribution.” The demand for better service, in part, can be tied to greater transparency on fees, thanks to mandated fee disclosures that service providers -- including financial advisers -- must make to plan sponsors. Greater clarity on fees is compressing the cost of doing business for all service providers, including record keepers and mutual fund sellers. “It used to be that advisers could comfortably charge 1% for their services, and now that's down to about 25 to 50 basis points,” said Craig Morningstar, chief operating officer of Dynamic Wealth Advisors, a turnkey registered investment advisory firm that also works with retirement plans. “Cost comparison is becoming the norm. Small plans want comparatives, which drive the appropriate pricing [for services].” The combination of falling fees and rising demands from plan sponsors is putting the squeeze on some advisers. Errors and omissions insurance coverage, for one, tends to become more expensive for financial advisers who decide to act as fiduciaries to retirement plan clients and take on the responsibility for selecting and managing the investments. But that's precisely the services plan sponsors are asking for, said Mr. Morningstar. Firms that specialize in 401(k)s -- and can manage the workload and cost -- will likely make out best. “[Plans] are not a casual business, but a specialty,” Mr. Morningstar said. “With enough volume, expertise and process, these are the people who will continue in that business. The dabblers are being challenged when it comes to the revenues versus the risk. It's just not worth it.”