Advising clients on their DC plans represents a unique specialty among financial advisors, but even among this group, there are several aspects that differentiate their activities, preferences and priorities, a recent study explains.
LIMRA Secure Retirement Institute’s “How Can We Help You? Exploring Defined Contribution Advisor Service Offerings” is based on a survey of 100 advisors to examine the services they offer based on the size of their DC business and method of compensation. Not surprisingly, it determined that there can be a great deal of diversity regarding which services are part of an advisor’s portfolio, depending on practice size or compensation method.
For example, mega-advisors are much less likely to offer services to individual participants. They also report being much less engaged in activities such as retirement readiness education, advising active or retiring participants and counseling departing participants. Instead, they choose to focus on plan level services and activities, the report notes.
Conversely, smaller advisors are more engaged with counseling and personal services to participants and executives, and are less likely to offer services relating to plan design, investment analysis, and RFP and vendor analysis.
When comparing by compensation, commissioned advisors, such as those with smaller DC practices, are more likely to include service to participants and individuals in their offerings, and are less likely to offer plan level, investment, or fiduciary services (with plan design being an exception).
LIMRA also found that very few advisors plan to add to their services. As a result, the study suggests that the more effective way to differentiate and add value may be to support and supplement advisors’ existing service offerings, rather than increase them.
One possible exception may be in offering fiduciary support by helping advisors understand what it means to be a fiduciary and making it easier for them to offer these services to their plan sponsors. According to the report, there appears to be “a disconnect” between the number of advisors who feel they are plan fiduciaries and those who offer common fiduciary investment services.
The report notes that 9 in 10 advisors say they are a fiduciary, but significantly fewer report offering specific services such as 3(21) (investment selection) and 3(38) (investment management) support. This suggests there’s a gap between what advisors believe their roles are and what they may be liable for, as well as how they may be presenting themselves to their clients.
LIMRA’s survey shows that 52% of advisors respondents say they provide 3(21) support for their clients and another 11% plan to add it. Meanwhile, 51% say they act as a 3(38) fiduciary, but only 6% plan to add it.
With fewer planning to add 3(38) services, the report suggests that advisors could perhaps benefit from aggressive outreach, education and support with respect to 3(38) offerings from recordkeepers and investment providers.
Meanwhile, financial wellness is another key area that offer advisors an opportunity to provide value-added services to their plan sponsor clients, ranging from broad-based to specific services. In fact, LIMRA’s research finds that 73% of advisors report that they specifically offer financial wellness support in their DC plans.
And while LIMRA’s research shows most advisor groups are not inclined to increase the services they offer, 15% of those who do not currently offer financial wellness said they planned to do so in the next two years.
Those most likely to offer financial wellness services are advisors with medium-sized DC practices and those who are compensated mostly by commission, the report notes. Advisors with smaller DC practices may already be challenged by the demands of a DC book, and including wellness efforts may stretch their practices’ capabilities, it further explains.
The most prevalent components offered in financial wellness programs are:
- Retirement savings services (96%)
- Investing support (95%)
- Rainy day/emergency funds (71%)
- Budgeting and managing spending (66%)
- College savings (66%)
- Short-term saving to support planned expenses (59%)
- Managing debt, including college loans and credit cards (58%)
LIMRA notes that managing debt is one of the least likely features to be included in the wellness programs, yet it has one of the strongest correlations to a person’s retirement savings. The authors suggest that helping advisors add this benefit to their offerings will increase their competitiveness, as well as the effectiveness of their DC plans.