Data & Research September 25, 2017

Sponsors Upping Their Fiduciary Game

They are focusing on their fiduciary responsibilities by moving to lower-cost investment options.
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Due to regulatory uncertainty and increasing litigation from plan participants, retirement plan sponsors have become more proactive about their fiduciary responsibilities, Deloitte found in its Annual Defined Contribution Benchmarking Survey, based on a survey of 240 sponsors. Sponsors are seeking out lower-cost investment options, moving from revenue-sharing to direct fees and simplifying their investment lineup.

More than one-third, 35%, of sponsors are conducting retirement readiness assessments that look at what percentage of a participant’s final income is on track to be replaced in retirement. This is up considerably from a mere 12% in 2013. Sixty-six percent of sponsors want providers to enhance their websites and tools to help them determine where they should concentrate their education efforts.

Sixty-five percent of sponsors target their communications messages based on demographics, while 54% use activity-based and 45% use behavior-based communications. As to what they are trying to achieve with these communications, 74% of sponsors said it is to encourage participants to increase their savings rates or opt into automatic escalation. Fifty-four percent said it is to provide investment education and to encourage participants to use recordkeeper tools. Sixty-five percent of sponsors use some form of an automatic solution, be it auto enrollment, escalation or managed accounts.

Ninety-three percent of sponsors offer either a company match or a profit-sharing contribution. Fifty-four percent do a true-up of their match at the end of the year for employees who reach the maximum compensation limit or who hit the 401(k) limit before receiving the maximum possible match, up from 45% in 2015.

Asked why their employees participate in their retirement plan, 41% of sponsors said it is to take advantage of the company match, and 31% said it is to save for retirement. Sixty-two percent of sponsors said their retirement plan helps them retain employees, and 74% said it is an effective recruiting tool. Asked why employees do not participate in their plan, 28% said it is due to a lack of awareness or understanding, and 7% said it is because of the uncertain economy and job market.

“As contribution and investment decisions move from the hands of finance departments to individual participants, the expertise of plan sponsors has shifted from a financial management role to a keen attention to their fiduciary oversight role,” says Stacy Sandler, a principal with Deloitte Consulting. “By acting in the best interest of plan participants, plan sponsors are offering holistic tactics to support participant financial wellness and focusing on simplifying the plan offerings. A critical component of that is making sure sponsors better educate employees on options and help them to fully utilize the financial tools and resources available to them.”

Deloitte’s full report can be downloaded here.

Data & Research September 25, 2017

Adviser Delivery Methods Crucial for Potential Clients

LIMRA finds that consumers want a one-stop-shopping approach to financial advice, which allows them to receive guidance on all aspects of their financial life from a single source.
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One third of consumers say delivery methods and costs are the most important factors they consider when seeking financial advice, according to a study by LIMRA. The organization also found that robo-advisers rank more favorably than human financial advisers, and the low costs usually associated with automated tools may be particularly attractive to consumers. However, LIMRA notes that, “While consumers recognize the need for professional advice, not all are willing to pay top dollar for it. Some consumers are willing to forgo a dedicated financial professional for the sake of cost.”

These findings seem to contrast a separate Millennial-focused study which recently found that return on investment (ROI) was the main value proposition among consumers who use robo-advisers and those who work with human advisers.

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Still, a hybrid approach that combines robo-advice with the human touch received a score nearly identical to that of low-cost online tools. LIMRA says, “This may foreshadow a consumer preference for team-based practice models over solo practices.”

But regardless of how money management advice is delivered, trust remains a crucial value proposition, according to the LIMRA study. The organization says, “Whether the consumer is using an online tool or meeting in person, leveraging this inclination by using testimonials and focusing on building relationships that foster trust is essential.”

Advisers can generate trust through social media and some studies show that this is boosting client-adviser relationships.

Moreover, the organization finds brand recognition and company reputation play huge roles in getting consumers interested in seeking professional financial advice. In fact, the study found that even if consumers had at least heard of a company, they would rank it higher than one they’ve never heard of. LIMRA notes that “a company with strong brand recognition will have significant advantage over a company with a weaker brand even if the consumer doesn’t have a strong opinion going into the search.”

LIMRA also found that consumers prefer a one-stop-shopping approach to financial advice. They want to receive insight and guidance on everything money-related from a single source rather than going to multiple professionals. These findings suggest advisers can benefit from being versed in various factors in a person’s financial life from budgeting to planning for retirement and making sure tax efficiency comes into play.  

However, the LIMRA study found that referrals ranked lowest in importance when examining different factors consumers consider when seeking financial advice. However, the organization points out that referrals can also heighten trust and brand recognition – two of the leading components driving consumer decision making, according to the study.

These key selling points will be increasingly important for advisers to hone in on as they reach out to a potentially underserved market. LIMRA’s own research suggests that 45% of consumers admit lacking financial knowledge, but only one in four is working with a financial professional.

“Five Important Factors Consumers Consider when Seeking Financial Advice” can be found at LIMRA.com. 

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