What Do Plan Sponsors Really Want From Their Advisors?

What factors affect plan sponsor satisfaction with advisors and their services? A March 20 session at the 2017 NAPA 401(k) Summit in Las Vegas offered some answers drawn from a brand new survey of plan sponsors conducted by NAPA and The Plan Sponsor University (TPSU).

Discussing the survey and the results were American Retirement Association Chief of Marketing and Communications Nevin Adams; Fred Barstein, founder and CEO of The Retirement Advisor University and TPSU; and Warren Cormier, CEO of Boston Research Technologies.

Why do plan sponsors hire advisors in the first place? By far the biggest criteria was industry training and credentials; 92% considered that at least somewhat important, and 63% said it was very important.

There was a bit of a divide between plans with $50 million in assets or more and those with less regarding how plan sponsors found their advisors. Requests for proposal (RFPs) were the most popular, but the former were almost twice as likely to use one; even so, only 38% of them used such a means.

That low figure is at least partially explained by widespread lack of understanding about RPFs and how to go about using one. But they see that changing. “We’re seeing more sophisticated plans doing it,” Barstein said, adding, “It’s going to spread.” The question, he said, is who does it. He noted that advisors may consider crafting their own. “I think it’s brilliant to create your own RFP” and give it to a potential client, he said.

And how satisfied are plan sponsors with the advisors they hire? The survey says 53% are satisfied overall with their advisor. Cormier noted that while that rating may sound okay, the last such rating showed 70% satisfaction. “That actually surprised me,” Adams remarked; however, Barstein said he was not surprised.

Barstein contends that in this case, “plan sponsors don’t even know what it means to be satisfied.” He said that while the industry focus is on preparing people for retirement, “we forgot to bring our own clients with us” and that there is a need to educate employers on why preparing people for retirement is important to the company. “Remember the HR person and benefits person thinks about retirement plans the way you think of compliance. They don’t like it,” Barstein said.

Not only that, the panelists also said that plan sponsors showed a less-than-perfect grasp of how those qualifications are indicated. “Plan sponsors may not understand there are letters after your name and what you did to get them, but those letters after your name mean something,” said Adams. Barstein sounded a similar note, telling attendees: “It’s vastly important and vastly underrated” to have some indication of credentials and experience.

Though a strong majority kept the compensation they provided to their advisors the same as the year before, Adams indicated that they may not entirely grasp what that money pays for. “They’ve got to know what they’re getting for that money. You’ve got to be up front. You’ve got to help them,” he said.

And Adams noted that the discussion of fees and the trend toward flat fees, which he said is already in motion, spells closer examination of the fees advisors charge. “They may be looking at your fees in a different light,” he said.

The Department of Labor’s fiduciary rule is double trouble, the survey found. Not only does it affect what an advisor does, their clients don’t get it. “Guys, plan sponsors don’t care about this,” said Adams. Barstein agreed, noting, “It’s not something I would ignore, but it’s just not on their radar now.”

Despite scrutiny of fees, the satisfaction rating, and the lack of understanding of advisors’ experience and what they offer, the survey still found only a 12% turnover rate. The main drivers of loyalty, they found, were the advisor anticipating clients’ needs and advisors helping them to stay in compliance.

By far the biggest reason plan sponsors switched advisors was their perception that the plan outgrew the advisor; a distant second and close third were the cost of the advisor’s services and the perception that the advisor was not responsive and did not help with critical services.

Barstein offered an antidote to being one of the advisors who is switched out of a client. “The most important thing is not what happened, it’s what’s going to happen. If you tell a client that, you’ll never be fired.”




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