intro | PLANADVISER July/August 2017

Rules of Engagement

Advisers need to go beyond automatically enrolling participants—to get them to take real interest in their retirement future.

By Lee Barney | July/August 2017

C1_PAJA17_Cover_p1sp_OK1.jpgThere is no doubt that automatically enrolling workers into their retirement plan has increased the number of retirement plan participants. However, only 41.1% of plan sponsors across all plan sizes auto-enroll employees, according to the 2016 PLANSPONSOR Defined Contribution (DC) Survey. Furthermore, when they do practice this strategy, 45.0% of sponsors defer a mere 3% of participants’ salary.

Considering those dynamics, some advisers and sponsors are beginning to challenge the conventional wisdom regarding the “be-all” of automatic enrollment and are seeking out ways to get participants actively engaged with their plans and taking a vested interest in their lives post-retirement. In “Reconsidering the Status Quo," we look at how helping people solve their financial concerns today can get them to a place where they can save adequately for the future.

Our research in this issue is the 2016 PLANADVISER Recordkeeper Services Guide, complemented by a feature on developments in the recordkeeping industry—“Thorough Analysis." Some industry experts predict that the fiduciary rule will prompt broker/dealers (B/Ds) to reduce the number of recordkeepers they work with, which could lead to further consolidation in the recordkeeping industry and affect the choices available to your clients.

“Reviewing Providers” reveals that an adviser’s job isn’t done when he assesses fees. It’s also important to analyze these fees in the context of the services being offered. Are the providers meeting the needs of each plan’s participant base? The adviser should be periodically issuing requests for information (RFIs) and requests for proposals (RFPs) to learn about new services that providers have developed that could be useful to their plan sponsor clients. He also should be asking each provider to underscore what it believes is unique about its services.

While 66.6% of defined contribution plans use a target-date or risk-based lifestyle fund as their default investment, according to the 2016 DC Survey, “Default Thinking” reveals how some plan sponsors are considering managed accounts for their QDIA, particularly for their older participants. Lower cost TDFs may serve younger participants, who have relatively small account balances, advisers are finding, but for those approaching retirement, the personalization of a managed account may be a better solution. Still, only 6.9% of plans use one of these as the QDIA.

In writing “The Best Path Forward," I spoke with advisers who focus on the micro market—i.e. plans with $10 million of assets or less—who are very content to remain in that market. They feel they make more of an impact on the plans they serve, they said, and like the strong relationships they form with the sponsors and participants. They also said the fiduciary rule is creating tremendous sales opportunities for them. With the majority of retirement plans fitting into that micro space, the potential for new clients seems endless for advisers.

We hope you find these stories illuminating and would love to hear back from you about how they impact your practice.