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What Effect Do Advisors Have on DC Plans?

Do advisors add value to their DC plan clients? That’s the big debate in Washington and in the industry today. But focusing on fees without measuring value makes the discussion almost meaningless. In their annual DC survey, PlanSponsor magazine compared the performance metrics of more than 3,000 plans that have an advisor to more than 2,000 that don’t. The result: While advised plans were better run, designed and benchmarked, there was not much difference in some key success metrics.

Specifically, when comparing plans with an advisor with those without one, the survey showed:

• Auto-enrollment: 41.7% with an advisor versus 38.8% without one
• Auto-escalation: 27.4% with versus 26.5% without
• Roth: 54.3% versus 49.4%
• Match: 69.9% versus 65.4%
• IPS: 71.8% versus 60.3%
• Investment committee: 25.7% versus 15.5%
• Quarterly reviews: 40.8% versus 32.2%
• Participation rates: 70.7% versus 65.1%
• TDFs: 72.6% versus 70.6% (target risk: 38.8% versus 34%)
• Deferral rates: both 6.1%

But for average and median account balances — a key metric — plans without an advisor fared better, at $77,947 and $58,000 respectively, compared with plans with an advisor at a $74,900 average account balance and a median of $55,000. The question is whether plans without an advisor are at larger companies or include more participants with higher salaries, which would skew the numbers. But the data certainly raise concerns and questions. What’s your take on the survey results? Use the comment box below.

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