2006 DC Survey - Pride Guide

Advisers share their favorite providers

By Alison Cooke Mintzer See Archive >

Providers that get high approval ratings from retirement plan advisers have something to brag about—our first survey of advisers' opinions of defined contribution providers shows they are tough customers, or at least more restrained in their praise than are plan sponsors.

Consider that the average scoring for service to plan sponsors was a mere 4.76 on the same 7.0 scale on which plan sponsors in our sister publication PLANSPONSOR last rated their providers 6.01 (See Chart). The adviser respondents to our survey appear to be focused on those client interests—with service to plan sponsors enjoying a stratospheric 6.69 (See Chart) on the 7.0 priority rating scale. Indeed, the clear (and perhaps obvious) importance of that criterion stands in sharp contrast to the evaluation of the delivery on that promise. Clearly, at least from the standpoint of advisers, providers have room for improvement—to put it mildly.

Different Folks, Different Strokes

One might well expect a more demanding eye from advisers who, after all, generally deal with multiple plan providers on a daily basis, and in a variety of circumstances. Moreover, unlike plan sponsors, which may well jettison (or want to jettison) a provider at the first hint of trouble, such decisions are not always within the immediate purview of the plan's adviser. Then, whether it is a matter of personal/professional pride in trying to make a troubled selection work, or just a real-world cognizance that such changes can have a seismic impact on plan operations, advisers must, as often as not, try to assuage the perceived gap between service commitment and delivery.

Of course, advisers frequently are the lightning rod for change, and often act as a potent source for demanding better from the provider community. Advisers tend to see more of what the market has to offer—and more often—than the plan sponsor clients whose causes they champion. When it comes to activities such as doing a provider search/evaluation, plan sponsors seldom have a chance to become true experts, after all—and, if they change providers often enough to obtain that expertise, well, they may prove to be a difficult client for the adviser, as well as the provider.

The challenge for advisers—perhaps even more than for plan sponsors—is how to stay fresh with the full range of capabilities that the industry has to offer, to find ways to reach beyond the core group of "comfortable" provider relationships that have been cultivated and nurtured over time. It is one thing to study, to conduct repeated site visits, to review the results of surveys, and to glean insights from colleagues; how does one arrange for a "test drive" with a provider without subjecting a valuable client relationship to risk?

While advisers frequently are viewed by some as having a strong sense of self-interest, that was not evidenced in their provider evaluation priorities. Range/quality of investment options barely bested service to participants in the provider importance attributes, and fee structure for plan sponsors placed well ahead of the adviser fee structure in their evaluations. In fact, adviser fee structure, adviser support post-sale, and adviser sales/marketing support were cited as significantly less important than factors affecting plan sponsor and participant servicing.

Fees are always a sensitive issue, which may explain why the lowest average and median scores in the survey were given to both categories of fee structure-both for the plan sponsor and, even more abysmally, for advisers. Additionally, those structures, already under pressure, are sure to undergo intensive scrutiny and potentially disruptive change in the relatively near future. Consider that, at present, the vast majority of the respondents to this inaugural survey (80.5%) are compensated via asset-based fees, while 38.7% receive some commissions, a scant 3.4% are paid a per-participant fee, and 14.5% report receiving some other form of compensation.