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Vanguard Small Plan Bundled Service Picking Up Momentum

With $600 billion in DC assets as of 2013 and 3.5 million participants, Vanguard is a giant in the DC market, but also a mystery to many in the plan advisor arena. Though many plan advisors have their funds in some of their plans, with an average plan size of 1,500 participants, few advisors have a plan for which Vanguard is the record-keeper. That will change based on results of their small market program in partnership with Ascensus, which serves plans under $20 million. Launched in 2011, sales have nearly doubled each year and are expected to top the 1,500 plans in 2014. It also provides an interesting comparison of plan design and the demographics of advisor and direct sold plans.

The average plan size for the Vanguard Retirement Plan Access (VRPA) product was $2.4 million overall and $3.8 million for advisor sold with a similar number of plans sold by each channel last year. Though active participant income was nearly 9% higher for single — or direct-sold — plans, account balances for plural — or advisor-sold —  plans were within 1% of those sold direct. Advisor impact on plan design was minimal, though 22% of advisor plans used automatic enrollment — compared to 13% for direct-sold. Deferral rates, auto-escalation and participation rates were similar for both types of plans, though advisor-sold had more Roth options, and fewer advisor-sold used target date funds as the qualified default investment alternative. The resulted in fewer assets in those types of investments: 33% for advisor-sold compared with 40% for direct. More assets rolled into an IRA for direct-sold plans than those with an advisor.

Vanguard is about low cost, which comes from scale. They are not against advisors — witness their thriving advisor-sold ETF business. The results of their small market program has convinced them that scale can best be achieved through a combination of direct-sold and advisor-sold, plans to small businesses which is the most underserved market. The results of the VRPA product show that while advisors have some impact on plan success, especially the all-important account balances, there still are more improvements that advisors can make.

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