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Record Number of Plan Sponsors Looking to Switch Advisors  

While a majority of plan sponsors report that they are highly satisfied with their plan advisors, a record number are actively looking to switch their advisors, according to new research from Fidelity.

Now in its 8th year, the firm’s annual Plan Sponsor Attitudes survey found that 65% of plan sponsors are highly satisfied with their plan advisors, but 38% are looking to make the switch, up from 30% last year and 9% in 2013. The survey, which began in 2008, includes the views of more than 1,100 plan sponsors who use a variety of recordkeepers and have at least 25 participants and $10 million in plan assets.

The key reasons cited for wanting to change advisors were:

  • a need for a more knowledgeable advisor;

  • too many servicing issues with their recordkeeper; and

  • not enough support for employee education requirements.

“This is not a time for plan advisors to rest on their laurels,” says Jordan Burgess, head of specialist field sales overseeing DCIO sales at Fidelity Institutional Asset Management. “For some advisors, this could put their business at risk. For others, this could be an opportunity to win new clients.”

According to the findings, plan sponsors’ top concern is reducing business costs related to having a plan, with 31% citing it as a top area of focus. Other concerns include:

  • managing fiduciary responsibility (23%);

  • preparing employees for retirement (22%); and

  • addressing the risk of litigation and liability (18%).

Noting that fiduciary concerns provide an opportunity for advisors, the survey found that 76% of plan sponsor respondents have hired or are considering hiring someone to help with fiduciary duties. Among the drivers for sponsors (based on the top 2 scores on a 7-point scale):

  • 48% expect significant impact to management of their plan due to the potential DOL investment advice rule;

  • 35% remain less confident in their understanding of plan fiduciary responsibilities; and

  • 60% stated that plan advisor willingness to take on formal fiduciary duties is important.

As for competing priorities, 67% of plan sponsors agreed that increased health care costs have resulted in reduced spending on other benefits — an uptick from 64% in 2016.

Plan Design Changes

The survey also found that plan sponsors are more active in making plan design changes than ever before, with plan advisors being the primary influencer. Plan design activity reached a new high at 92% and nearly 80% of plan sponsors reported that participants were satisfied with the changes, Fidelity noted.

Auto-enrollment remains the most popular plan design change among survey respondents, with 42% introducing the feature in the past two years. Perhaps more importantly, more than two-thirds (68%) reported that their participants were satisfied with auto-enrollment, according to the results.

Among the other most popular design changes were:

  • adding a QDIA (32%);

  • enrolling or re-enrolling into a TDF (30%); adding a Roth contribution option (29%); and

  • adding an annual increase program (28%).

Income Replacement and Savings Rate

While the majority of plans (71%) have an income replacement goal, only 25% identified a replacement goal of between 25% and 50%. Noting that plans should aim for a 45% income replacement rate in retirement years, Fidelity suggests that the low level of plans targeting this range indicates a need for advisors to help set goals for retirement income based on these best practices.

The study further revealed that nearly 60% of plan sponsors believe their default deferral rate plus company match will provide sufficient retirement savings for participants. Yet, 8 in 10 plan sponsors report that they have employees who may delay retirement because of a lack of savings, made worse by rising retiree medical costs.

The survey was conducted during February and March 2017 in collaboration with the eRewards panel from Research Now. Survey respondents were identified as the primary person responsible for managing their organization’s 401(k) plan and focused on those plan sponsors (890 or approximately 80%) using the services of a financial advisor or plan consultant.