When asked about the biggest hurdles they face in growing their practice, plan advisors cite identifying new opportunities, especially those already managed by incumbents, as well as managing scale, according to a new industry report.
Vestwell’s 2018 Retirement Trends Report is based on the results of separate surveys conducted among retirement plan advisors and plan sponsors to gauge their perception of the industry as it relates to selling, adopting and maintaining plans. Only advisors who sell retirement plans were allowed to respond to the advisor component of the survey, resulting in 352 responses. The sponsor survey included more than 50 plan sponsors representing more than 50 companies.
According to the report, advisors say the biggest hurdles they face when it comes to growing their retirement practice include:
- Identifying new opportunities (30%)
- Displacing incumbents (25%)
- Managing scale (23%)
- Price compression (10%)
- Articulating value proposition (9%)
- Regulation (3%)
The report found that there is only a “nominal difference” in data between retirement specialists and those who see retirement as an extension of their business, emphasizing that “these issues are not unique to those trying to tap into the market.”
“These results align with our direct findings on the industry. We don’t see the same level of fee compression concerns in the sub $25 million marketplace, but we do see many savvy advisors wising up to the conflicting competitive nature of incumbent providers,” explains Vestwell CEO Aaron Schumm. “With that in mind, we’ve witnessed more and more bulk conversions to un-conflicted, flexible platforms — ours included.”
Top Priorities
Growing, servicing and retaining their client base are the most important priorities for advisors, according to the findings. Here’s how advisors ranked their priorities:
- Growing client base (57%)
- Servicing and retaining clients (22%)
- Driving operational efficiencies (13%)
- Better leveraging technology platforms (7%)
- Navigating regulatory changes (1%)
Turning to how advisors perceive plan sponsors when selecting a platform, the report notes that one might presume that saving sponsors money and maximizing tax benefits would be their top selling points. Yet, the findings show that advisors view minimizing fiduciary risk and administrative burden as even more important factors in helping clients select a retirement plan.
Advisors also suggest that the most common mistake plan sponsors make is not understanding what they’re paying for. “Between confusing cost structures and hidden fees, it is often difficult for plan sponsors to decipher exactly what they — and their employees — are paying and what they’re getting in return,” the authors explain.
Advisors’ perceptions of the biggest mistakes plan sponsors make when it comes to their retirement plans include:
- Not understanding what they’re paying for (35%)
- Not realizing their fiduciary risk (26%)
- Not staying on top of administrative tasks (18%)
- Not understanding their participants’ needs (14%)
- Not regularly assessing their investment portfolio to account for marketing changes (7%)
Plan Sponsors’ Pain Points
The biggest “pain point” for plan sponsors when it comes to plan administration is filings, taxes and compliance activities. This may be a cause for concern in that these responsibilities outweighed fiduciary responsibility, one of the most important factors that advisors consider when selling a plan. Here’s how plan sponsors ranked their concerns:
- Filings, taxes and compliance activities (37%)
- Administering payroll (28%)
- Engaging employees (16%)
- Owning fiduciary responsibilities (10%)
- Other (9%)
“In today’s litigious environment, it’s critical that advisors educate clients on their fiduciary obligations,” notes Allison Brecher, Vestwell’s General Counsel. “Even by naming a fiduciary other than themselves, plan sponsors do not offload risk in its entirety… but it’s still an effective way to mitigate exposure and avoid costly mistakes.”
