Advisors previously were far less sanguine than plan sponsors about 401(k) plan participants’ retirement readiness, but those views appear to be converging.
With advisors less pessimistic and sponsors less optimistic, both sets of stakeholders now see the need to improve retirement outcomes for plan participants, according to the second edition of Voya Investment Management’s “Survey of the Retirement Landscape: Challenges and Opportunities for DC-Focused Advisors.”
Though some perceptions have changed since the initial survey, views on a few key issues have evolved and several new issues have arisen, the report notes. Most notably is an emerging concern for holistic financial wellness. In tandem with evolving views of retirement readiness, sponsors would like to see broader financial wellness topics addressed in participant education.
“We found that the issue of retirement readiness is more of an issue for plan sponsors and is often an area where they could do more to address the topic with participants,” notes Michael DeFeo, head of Retirement and Investment Only at Voya Investment Management. “On the other hand, advisors are more optimistic, perhaps because they have been able to convince their sponsor clients of how important this is and have provided them with the tools for those conversations.”
Sponsors also are looking for expert guidance on a broader range of issues compared to two years ago, including alternative plan design, cybersecurity and special needs caregivers, according to Voya. “Plan compliance remains a top concern for both advisors and sponsors, but a number of new issues emerged that weren’t on the radar of advisors or sponsors in the past, such as cybersecurity, which will only grow in importance,” DeFeo emphasizes.
Current Service Offerings
Sponsors and advisors generally agree on the kinds of plan support offered, although sponsors seem less likely to recognize the services provided by advisors. This misperception is likely to confuse sponsors about what they are paying their advisor to do, and points to a need for advisors to communicate their value-add more effectively, the firm emphasizes.
Voya notes that large plan sponsors are more likely to recognize their advisors provide support for investment selection and plan fiduciary responsibilities, but are less likely to recognize support for financial wellness. By contrast, small and mid-sized plan sponsors are more likely to say their advisors support financial wellness, but perceive less help with selecting plan service providers.
Advisors generally believe that plan sponsors need help understanding fiduciary responsibilities, are overwhelmed by compliance burdens, demand more services and expertise from advisors and have a growing need for support.
Sponsors, however, are less likely than advisors to say they need support with these issues, though there have been minor changes in their views since the initial study. For example, Voya notes that in the initial study, 91% of sponsors said they prefer to work with an advisor who specializes in retirement plans. In 2018, that figure increased to 94%. Likewise, demand for “more service/expertise from advisor” rose from 55% to 63% over the same period.
Sponsors also are still behind the curve in using risk-assessment tools to gauge the suitability of investments and will need advisors to help fill this gap, according to Voya.
Comparing advisor and sponsor concerns further reveals several discrepancies that may be important to advisors in tuning their mix of services to sponsors.
While advisors ranked fiduciary/compliance issues as their top priority in both surveys, they were ranked fourth by sponsors in 2018, suggesting there may be fewer opportunities to discuss this service than advisors think, according to Voya.
Conversely, market volatility gets ranked 5th by sponsors but only 10th by advisors, suggesting there may be greater opportunities here to offer services than advisors may perceive. Sponsors and advisors agree on the importance of educating plan participants.
Sponsor priorities, meanwhile, appear to have not shifted much. For example, increasing plan participation was a top concern and remains so in the most recent survey. By contrast, “plan details” – including those related to options, fees, match, investments and performance – may have become more important, Voya observes.
Brookmark Research and Practical Perspectives assisted with the development, execution, and analysis of the survey, which was conducted in December 2018 among 307 plan sponsors and 204 advisors.