A record number of 401(k) plan sponsors are now using advisors, but that doesn’t mean advisors should rest on their laurels, a new industry study warns.
As part of its 10th annual Plan Sponsor Attitudes survey, Fidelity looked back at how plan sponsors’ relationships with plan advisors have changed over the years. Not surprisingly, more plan sponsors are seeing the value of working with advisors.
The percentage of sponsors working with an advisor has reached an all-time high of 93%, up from 68% in 2008. The number of sponsors that were very satisfied with their advisor stood at 19% in 2010, but that has now reach 63%. What’s more, the number of sponsors that are actively looking to switch advisors is down, dropping from 22% in 2018 to 18% in 2019. This is compared to a record-high of 38% in the 2017 study.
The findings show that 75% of sponsors made a change to their plan design or investment menu in the past two years. Not surprisingly, behavioral finance appears to have played a leading role, with the study showing that the top changes involved employer matches and the increased use of automatic features. Consistent with last year’s study, the top menu change was to increase the number of investment options.
Top plan design changes
- Increased the match (26%)
- Added a match (24%)
- Added Roth contribution option (21%)
- Added auto-increase (20%)
- Added an income-replacement fund (19%)
- Added auto-enrollment (18%)
- Changed the matching formula (18%)
- Added an in-plan annuity option (18%)
- Enrolled/reenrolled plan into TDF (17%)
- Increased auto-enrollment percentage (17%)
Top investment menu changes
- Increased the number of investment options (28%)
- Replaced an underperforming fund (23%)
- Added a TDF (21%)
- Added an index fund (20%)
- Changed to lower-cost share (17%)
- Added a managed account program (16%)
- Changed TDF provider (15%)
- Reduced the number of investment options (13%)
- Added a CIT (12%)
- Added a stable fund (12%)
It also appears that sponsors are reviewing plan performance more often, with a shift away from annual reviews (14% in 2019 versus 27% in 2018) to quarterly reviews (45% in 2019 versus 38% in 2018). Fidelity emphasizes that this is an opportunity for advisors to play a more active role as sponsors may seek more frequent check-ins.
Top Reasons for Hiring
The study shows that the top two reasons plan sponsors hire advisors are to help with understanding how well the plan is working for employees and how to improve it (27%), as well as help with understanding the increasingly complicated process of managing a retirement plan (26%). "Plan sponsors are balancing both company and employee needs, and they're looking to plan advisors to help them better understand the complexities of a retirement plan in order to meet those combined goals," explains Jordan Burgess, specialist field sales head overseeing DCIO sales at Fidelity Institutional Asset Management.
Concern about fiduciary responsibilities also remains a key issue among plan sponsors, registering as the number two concern about the plan – up from number four last year. This year, 33% of plan sponsors said they were unsure if they fully understand their fiduciary obligations.
When asked what impact advisors have on the plan, “providing help with fiduciary requirements” was the number one response. The study notes that 90% of plan sponsors said that their advisors provide some fiduciary service to the plan. In addition, 74% of sponsors with a 3(38) discretionary advisor were very confident they fully understood their fiduciary obligations.
The study also reveals that many plan sponsors believe their employees are falling short in their retirement savings. While 62% of sponsors said their employees expect the plan to meet all their funding needs in retirement, slightly more than half (55%) said they believe their plan participants are saving enough in the plan to retire.
Fidelity also found that 9 out of 10 plan sponsors reported that they have had employees work past their desired retirement date. Seventy-three percent of sponsors acknowledged that there are costs when employees delay retirement, including increased benefit costs (37%), reduced mobility for younger employees (33%), challenges for strategic workforce planning (31%) and lower productivity (27%).
More plan sponsors and advisors are also seeing the value of implementing programs to improve employees’ overall financial wellness. In fact, this year’s study found that more than half (56%) of sponsors said they offer financial wellness programs, and 59% saw them as very impactful for employees.
Fidelity notes that advisors have helped sponsors implement these programs: Two-thirds of sponsors said that advisors discussed financial wellness programs with them, and plans with advisors were more likely to have them in place than those without advisors (57% versus 43%, respectively).
Fidelity’s survey was conducted in February 2019 in collaboration with Harris Insights and Analytics, which administered an independent online survey of 1,252 plan sponsors that use a wide variety of recordkeepers. Respondents were identified as the primary person responsible for managing their organization’s 401(k) plan and all plan sponsors confirmed their plans had at least 25 participants and at least $3 million in plan assets.