Even though advisor satisfaction reached its highest level in five years, retirement plan sponsors actively seeking a new advisor also hit record highs, according to the 13th edition of Fidelity’s Plan Sponsor Attitudes Study.
Fidelity’s study—which began in 2008 and surveys employers that offer retirement plans using a wide variety of recordkeepers—characterizes 2022 as a year of change for the retirement plan industry with plan activity and competition among plan advisors hitting multiyear highs.
For instance, it found that 88% of plan sponsor respondents are planning to make changes to plan design and 93% are planning to make changes to their investment menu lineup. The percentage of sponsors planning lineup changes in 2022 increased in 14 of the 16 categories presented in the survey.
The study also revealed that competition among plan advisors and recordkeepers is reaching an all-time high, with 47% of plan sponsors considering a new advisor (compared to 34% in 2021) and 48% considering a change of recordkeepers. These findings come even as 76% of plan sponsors indicated that they are satisfied with their advisor—the highest in five years.
“Plan sponsors are continuously seeking more expertise from their plan advisors year- over- year to help them in a more diversified capacity and are not afraid to look elsewhere if a competing advisor offers a better experience,” notes Liz Pathe, head of Defined Contribution Investment Only (DCIO) Sales at Fidelity Institutional. “With such strong activity this year, it increases the expectations and pressures surrounding this space.”
Heightened Needs
The top reasons why plan sponsors may be seeking a new advisor include:
- the need for better employee communications and education;
- another advisor offered a superior investment lineup; and
- the need for an advisor who is more effective in dealing with servicing issues with the recordkeeper.
In fact, Fidelity notes that plan sponsors are seeking more advisor expertise in many areas; when asked, the most notable request was “proactive suggestions for improving plan performance” (51%). Advisor solicitations also doubled this past year, with 66% of plan sponsors reporting that prospecting advisors piqued their interest within three main categories:
- knowledge on 401(k) plans;
- lower costs; and
- help with fiduciary responsibilities.
This interest, according to Fidelity, shows that sponsors value advisors who can provide education and improve outcomes the most. Sponsors are also recognizing that advisors play a key role in attracting and retaining talent, with 91% reporting that advisors help promote their retirement plan to current and prospective employees.
It also was reported that advisor guidance surrounding heath savings accounts (HSAs) is important; further, those advisors who had conversations regarding HSAs earned a higher satisfaction score than those who didn’t (+11 points), the study notes.
Evolving Investment Menus
Meanwhile, investment menu changes continue to rise, with 93% of plan sponsors planning to make changes to their investment lineups in 2022. The top three planned changes in the next year include:
- expanding the number of sustainable or environmental, social, and governance (ESG) funds (27%);
- increasing the number of investment options (27%); and
- increasing the number of managed account options offered (26%).
When asked about interest in ESG, sponsor interest persisted, with 73% stating their advisor has proactively mentioned ESG investment options and 75% of sponsors wanting to know more.
Interestingly, 44% of sponsors prefer ESG-focused strategies that invest only in companies that screen well based on various ESG factors, whereas 48% prefer ESG as a management focus and one of many inputs used to make investments decisions, the study found.
Plan Design Changes
Sponsors are highly satisfied that plans are meeting their goals, with ratings hitting multiyear highs especially among advised plans—76% satisfaction rating versus 65% for non-advised. Almost a quarter (22%) of plan sponsors are measuring the success of plans based on the benchmark of industry standards for employee participation/savings rate goals, while others measure based on employee happiness (19%) and participation levels (13%).
What’s more, 70% of plan sponsors believe employees are saving enough for retirement, with 64% believing the auto-enrollment deferral rate/company match are a sufficient retirement savings rate (up from just 46% in 2018).
However, there are competing financial priorities that are affecting employee savings, according to plan sponsors. When asked what these were, 50% of respondents reported that current living expense are too high, 40% reported a lack of discipline in saving for future needs, and 37% reported it was due to high health care costs. Sponsors also reported that roughly 6 in 10 employees (62%) retire early, some by choice and others by necessity, with 34% of that due to reasons within their control and 28% due to reasons beyond their control.
To combat these competing financial priorities, 88% of sponsors expect to make plan design changes in 2022. When asked what changes are expected, 27% said they plan to increase their matching contribution, with 34% reporting that they made that change in the past two years.
The findings in Fidelity’s study are based on an online survey of 1,285 plan sponsors conducted in March 2022. Fidelity was not identified as the survey sponsor. Respondents were identified as the primary person responsible for managing their organization’s 401(k) plan, which had at least 25 participants and at least $3 million in plan assets.
