Client Service July 9, 2024

Vanguard Leans Into DC Adviser Outreach

The recordkeeper and asset manager has made recent investments in consultant relationships as a tactic to grow its workplace plan and participant numbers.

Reported by

Vanguard has maintained its third-place position nationally for overseeing the most 401(k) assets among recordkeepers, according to recent defined contribution data released by PLANSPONSOR. Part of maintaining that spot, while also growing assets, has been an effort in recent years to bolster its team working with defined contribution consultants and advisers, according to top executives.

Vanguard, as both a large recordkeeper and the country’s largest provider of target-date funds, has multiple touchpoints with workplace savings, including through its defined contribution investment only asset management distribution and managed account offerings. But in recent years, the firm has also added hires and restructured its DC consultant and adviser outreach division to influence and serve the adviser space, says Jane Greenfield, a principal and head of consultant relations for institutional retirement.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“We hired more sales executives and structured them in teams to serve their key accounts,” Greenfield explains. “It gives them the opportunity to cover both the home office and the field by taking a team approach for a particular consultant.”

The focus on workplace engagement came under former CEO Tim Buckley, who retired, as of Monday, after 30 years at the firm. The new firm head, Salim Ramji, comes from BlackRock Inc., where he was head of the firm’s iShares exchange-traded-funds division.

Ramji is the first external hire to take over as CEO. He  takes over after Vanguard made several moves under Buckley to hone its business areas. Those included selling its U.S.-based outsourced chief investment officer business to Mercer and shedding its individual 401(k), multi-SEP and SIMPLE IRA plan business in a sale to Ascensus. Those businesses sat under Vanguard’s financial advisement business, not its institutional retirement unit, according to a spokesperson.

BlackRock, Ramji’s former employer, has also made a public push into retirement plans recently, with Chairman and CEO Larry Fink using his annual letter to focus investors on a retirement “rethink,” including the use of a new BlackRock in-plan annuity option called LifePath Paycheck.

DC Focus

While the direction Ramji takes Vanguard will start to take shape in coming months, Vanguard has historically been a firm that does not grow through acquisitions, but by creating business lines from within. Part of that growth has been coming from, and will continue to come from, serving the workplace savings market, says Greenfield.

She believes employee needs and expectations have grown in recent years, and participant “reliance on the DC plan [and related benefits] is as high as it’s ever been.”

Greenfield says the firm’s DC consultant-facing team and approach has led to more consistent messaging and a reliable contact person to answer questions and work through issues for advisories working with plan sponsors. The goal of those relationships is to ensure plan sponsor consultants are getting their clients the right Vanguard offerings for their participant pool. It also helps with basic blocking and tackling for an adviser with their plan sponsor client, according to Greenfield.

“If we have something that needs to go out to a plan sponsor, the first call is going to be to the consultant—we don’t want our consultants to be caught on their heels when answering questions from a plan sponsor,” she says.

In PLANSPONSOR’s 2024 DC Benchmarking Survey, Vanguard reported $616 billion in 401(k) assets, sitting behind Fidelity Investments’ $2.9 trillion and Empower’s $1.1 trillion. PLANSPONSOR is the sister publication of PLANADVISER. Vanguard remains the largest TDF manager by assets, according to data from Simfund, which, like PLANADVISER, is owned by ISS STOXX.

Workplace Engagement

Matt Brancato, a principal and chief client officer of institutional for Vanguard, says the retirement industry as a whole is moving into a “third DC era” in which the industry is going away from just “getting investments on the shelf” to using behavioral finance techniques and technology to further participant engagement. Brancato, who works directly with plan sponsors for Vanguard, notes that the firm “doesn’t take for granted” that engagement.

He notes that the Vanguard’s financial wellness hub has an 80% completion rate for participants who sign on, in part due to using technology to “get in front of people at the right time.”

Meanwhile, he sees three areas of development to increase personalized saving and financial planning: an artificial intelligence-backed personalization engine to connect with participants; editorial and behavioral tools to prompt action; and machine learning to help identify the best action.

There is certainly still more to do. In Vanguard’s latest America Saves report, the firm noted that, while more plan sponsors are offering managed account offerings with advice, the percent of participants taking advantage of them has held steady at about 7% dating back to 2020. Meanwhile, among participants in managed accounts being offered to use advice, only 10% overall are leveraging the service.

Moving such offerings forward may, in part, rely on how well the offerings flow from advisers to plan sponsors to the end participant. That, Greenfield says, is where her team’s focus will continue to support success, along with, ideally, bringing on more plan management overall.

“We’re building an organization focused on serving both consultants and plan sponsors in order to bring the mission to participants through every single interaction,” Greenfield says. “That focus has helped significantly increase our win rate [among plan sponsors].”

Compliance July 8, 2024

ERISA Advisory Council Makes Case for Annuities as Part of QDIA

An ERISA Advisory Council hearing explored expanding the use of annuities in default investment offerings.

Reported by

Experts at an ERISA Advisory Council hearing recommended that annuities should be part of a defined contribution plan’s default investments as a hedge against longevity risk.

The council is a 15-member body that gives advice to the Department of Labor as needed. On Monday, the first of a three-day meeting, the council explored the possibility of making lifetime income options more prevalent as qualified default investment alternatives. In May, the council decided to host the meeting to further research QDIAs in DC plans and health insurance appeals processes. The council is chaired by Mayoung Nham, a principal at Slevin & Hart PC.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Olivia Mitchell, a professor of insurance risk management and the executive director of the Pension Research Council at the Wharton School of the University of Pennsylvania, testified in favor of a specific default annuity structure in DC plans. She recommended that participants be defaulted into a product in which approximately 10% of their plan balance at age 65 is used to purchase a deferred annuity that does not begin to pay until they are about 80 or 85 years of age.

Mitchell argued that a “default annuity, not for your entire nest egg, just 10% of your money,” balances several concerns. Since it would not begin to pay until the participant is older, it is more targeted to addressing longevity risk—the risk of outliving all savings. It would also address the fact that “financial decisionmaking and financial literacy often decline later in life,” because participants would need to do less to manage decumulation of their plan assets as they get older.

She acknowledged to the council that this is a one-size-fits-all approach, but she said defaults should be simpler and will often take that form. A more tailored approach would be more expensive and complicated, and “employers might not have the time and money to do that much analysis,” but “if people want extra bells and whistles, that can be offered as well.”

Michael Finke, a professor of wealth management at the American College of Financial Services, spoke more generally to the benefits of annuities as default options in DC plans. He explained that DC plans are very good at accumulating assets, but “not very good at getting the money out,” meaning it can be difficult for participants to budget from a pot of money. An annuity, however, provides them with regular income that is more easily budgeted.

When retirees have a reliable income for life, Finke said that research shows they tend to spend more because there is “less need to be cautious,” since they cannot run out of savings. This effect can be dramatic, because retirees spend income more liberally than they spend savings.

Adding to Mitchell’s point, Finke noted cognitive decline in old age, which can further aggravate the difficulty of budgeting from a pile of assets as opposed to monthly checks.

Lastly, Finke acknowledged that annuities can be complicated, and “people don’t really understand what they are.” He briefly recommended that the council explore additional disclosures that could help explain annuities to participants using them and added that putting the contracts in plans could protect participants from buying lower-quality annuities in retail markets out of ignorance, since plan fiduciaries are better situated to choose safer products.

Federal legislation pending since June 2023, the Lifetime Income for Employees Act, would make it easier to use annuities as a default option as long as no more than 50% of participant contributions were invested into one. Annuities are not banned, per se, as defaults, but DOL regulations require QDIAs to be available for withdrawal every three months, a requirement that most annuities cannot satisfy. The bill would remove this requirement for annuities, provided they comply with the 50% limit.

The council will host additional experts on Tuesday and Wednesday to further discuss QDIAs and health insurance appeals.

 

«