The results of a new survey of consulting and advisory firms that serve plan sponsor clients reveal the latest marketplace trends and factors that are driving plan sponsor decisions.
Among the findings in T. Rowe Price’s latest Defined Contribution Consultant Research Study are support for the continued evolution of target date investments and retirement income solutions, and growing interest in financial wellness programs, especially in response to the COVID pandemic. The survey also sheds additional insight into views on environmental, social and governance (ESG) adoption.
In partnership with Schaus Group, T. Rowe Price surveyed 32 DC consultants and advisory firms that provide services to more than 33,000 plan sponsor clients and report nearly $7.2 trillion in assets under advisement.
Retirement Income and QDIAs
With respect to target date solutions, consultants strongly support an increased focus on CIT-based target dates and the pursuit of blend solutions that deliver the benefits of both active and passive investment management. Of note, these cost containment trends received greater support than simply increasing the use of passive investment management, the study observes.
Consultants showed less support for use of managed accounts as QDIAs and mild support for adding or increasing allocations to diversifying asset classes (e.g., TIPS, private equity and real estate).
Looking to managed accounts, greater need for participant engagement and difficulty in getting information on other participant assets were cited as key factors that have stood in the way of greater adoption of managed accounts as QDIAs.
T. Rowe notes that its data suggest that more participants are remaining in their DC plans for longer after they retire. Potentially accelerating this trend, lower cost for comparable investments versus a rollover IRA, flexibility in drawing down assets and investment solutions that generate income were ranked highest as features that may best persuade more participants to stay in the plan after they retire.
Consultants also report simple systematic withdrawal capabilities as the most appealing retirement income solution despite limitations. However, multi-asset investment solutions (managed accounts with income planning features and target date investments with embedded managed payout features) followed closely behind.
Financial Wellness
Addressing greater financial wellness, 76% of consultants report that plan sponsors signaled greater interest in emergency savings and 60% report greater interest in debt management. In contrast, most respondents reported fewer than 25% of their plan sponsor clients currently offer emergency savings programs. More positively, 83% of plan consultants expect this figure to increase in the next three to five years, T. Rowe notes.
The survey also found that while there is broad interest in ESG, the majority of consultants report that plan sponsors are looking for further clarity on the Department of Labor’s proposed guidelines before making ESG investments a part of DC plan investment options.
ESG Interest
With respect to implementation of ESG, 40% of study respondents indicated preference for actively managed ESG investment strategies, while only 10% said passive ESG investment strategies were preferable. Respondents also indicated that more detailed ESG screening, reporting and monitoring should be provided by investment providers.
Additionally, consultants are seeing plan sponsors evaluate investment managers’ diversity, equity and inclusion (DEI) baseline reports to satisfy basic due diligence. However, further integration of DEI information into plan and investment decisions may require evolution, as only 31% of plan sponsors are using DEI information to actively drive decisions on new investment options, the study notes.
“The retirement ecosystem is changing rapidly and we find the consulting and advisory community evolving their businesses to address both obstacles and new opportunities,” said Michael Davis, Head of Defined Contribution Plan Specialists and former Deputy Assistant Secretary of the U.S. Department of Labor.
The survey was conducted from Sept. 20, 2021, through Nov. 8, 2021.
