Retirement plan advisors take note—2023 should be thought of as a year of opportunity, as an increasingly complex retirement landscape is expanding the pathways for greater advisor impact.
This is according to findings from Fidelity Investments’ 14th Plan Sponsor Attitudes Study, which found that 94% of plan sponsors work with an advisor and/or consultant, with a primary focus on employee education and plan improvement. In fact, the percentage of sponsors actively searching for a new plan advisor is creating opportunities for advisors to demonstrate their knowledge of sponsors’ needs, such as employee financial outcomes and overall plan education.
And with the drivers of plan advisor value continuing to be employee-focused, advisors who work with sponsors to help improve employee outcomes, as well as provide administrative support and objectivity when making plan recommendations, can better demonstrate their value and alleviate burdens, Fidelity notes.
“While we see the relationships between plan sponsors and plan advisors evolving, employee communication and education remains at the forefront, with sponsors looking to advisors to offer a more holistic experience,” says Liz Pathe, head of Defined Contribution Investment Only (DCIO) Sales at Fidelity Institutional. “With plan designs, investment lineups, and the benefits landscape all evolving, advisors have an opportunity to showcase their impact and service-centered mindset.”
Value Added
While plan advisors offer a broad range of services, the research further revealed that plan sponsors value improved participant outcomes (44%) over any other service offered by their plan advisor. Other drivers of value were time spent on plan and administrative support (43%) and providing objectivity when making plan choices (41%).
At the same time, even though 76% of sponsors were extremely satisfied with their advisor—a level maintained from 2022—nearly a quarter (22%) reported that they were actively looking to switch, while more than a third (35%) noted they were simply searching due to external factors and/or benchmarking.
For those actively searching, the motivations behind their interest include seeking an advisor who:
- offers more extensive services (38%);
- is more effective in dealing with servicing issues (36%); and
- who offers better employee communication and education (34%).
For those who were searching due to an external/benchmarking lens, the top motivations included: merger or acquisition of the company the advisor works for (43%); the current advisor retired/left the business (38%); and merely wanting to review other services being offered (31%).
CITs in Demand
Investment menu changes, meanwhile, continue to be on the rise. Fidelity’s study found that, within the past two years, the most notable enhancements include an increased number of investment options (30%); increased number of collective investment trusts (CITs) (29%); and offering CITs for the first time (28%). In fact, the percentage of sponsors beginning to offer CITs had a 10% annual growth rate from 2018 to 2023.
When asked about future planned changes, the rise of CITs remains prominent. Across the board, nearly 3 in 10 sponsors are considering offering CITs for the first time (29%); increasing the number of CITs (28%); as well as increasing the number of index funds offered (28%).
“We’re seeing an increase in small plans preferring advisors to have autonomy when managing investments and overall design,” adds Pathe. “In an evolving investment landscape, it’s not surprising to see sponsors lean on advisor expertise to strengthen overall knowledge and make modifications to product lineups.”
Participant Engagement
Turning to plan design changes, the study found that nearly all sponsors (95%) are expecting to make adjustments during the remainder of the year. The most notable include:
- increasing the matching contribution (26%);
- increasing the auto-enrollment deferral rate (26%); and
- beginning to offer an income replacement fund (26%).
Fidelity notes that these remain relatively consistent with those made over the past two years.
Meanwhile, 74% of sponsors are “very satisfied” that plans are meeting company objectives, with the primary goal of providing adequate retirement savings to successfully replace working income (30%). In contrast, the most notable concerns include whether the plan is helping to attract and retain top talent (27%); financially preparing employees for retirement effectively (26%); and reducing retirement plan costs for employees (16%).
And while 72% of plan sponsors believe employees are saving enough for retirement, the study finds there are competing financial priorities affecting employee savings. When asked what these were, nearly half (47%) of respondents say current living expenses are too high; 38% reported high heath care costs; and 36% reported lack of discipline in saving for future needs.
Sponsors also report challenges when it comes to employee turnover. On average, plan sponsors reported hiring 37% of employees in the past two years, with 58% of employee tenure at or under the five-year mark. In fact, 71% of sponsors noted such high turnover has created 401(k) plan education challenges within the past year.
The findings are based on an online survey of 1,351 plan sponsors conducted in March 2023. Fidelity was not identified as the survey sponsor, but respondents were identified as the primary person responsible for managing their organization’s 401(k) plan. In addition, all plan sponsors confirmed their plans had at least 25 participants and at least $3 million in plan assets.
