The Markets May 19, 2020

Sponsors’ Satisfaction With Advisers Remains Relatively High

Ninety-two percent of sponsors work with advisers, but only 70% are ‘very satisfied’ with their relationships.

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Fidelity Investments has released its 11th annual Plan Sponsor Attitudes Survey. As in years prior, the top concern among the 1,500 sponsors who were surveyed is whether their plan is effectively preparing their employees to retire in a sound financially state.

In late March, Fidelity also surveyed nearly 1,000 plan sponsors that use its recordkeeping services, and their top concern was employee financial wellbeing.

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Fidelity reports that in the past two years, 74% of sponsors made changes to their investment menu, and 82% made changes to their plan design. The top investment menu changes were to increase the number of investment options (28%), replace an underperforming fund (23%) and add a target-date fund (TDF) (23%).

Among those making plan design changes, the top one was adding a company match, followed by increasing the match, changing the match formula and adding a Roth contribution option.

This year’s study also reveals that those plan sponsors working with an adviser made plan design changes at a higher rate than those not working with an adviser, including increasing the automatic enrollment deferral rate (7% higher), adding a Roth contribution option (6% higher) and adding automatic escalation (4% higher).

Overall, 92% of sponsors work with advisers, yet only 70% are “very satisfied” with their relationships.

“While supporting their employees’ retirement readiness has always been a top priority for plan sponsors, the current market crisis has accelerated its importance,” says Liz Pathe, head of defined contribution investment only (DCIO) sales for Fidelity Institutional. “Plan sponsors are looking for guidance and reassurance during this difficult time, and we continue to see plan advisers playing an important role in helping companies identify ways to improve their retirement plans and help their employees strengthen their financial well-being.”

With this fact in mind, Pathe says, Fidelity decided to look at sponsors’ actions following the financial crisis of 2008. By 2010, 35% of sponsors who decided to work with a plan adviser said the top reason was because they needed help with plan investments, especially given the market situation. This year, the top reason for working with an adviser, cited by 29%, was because of the increasingly complicated process of managing a retirement plan.

Asked how their advisers underscore their value, 56% of sponsors this year say it is the performance of plan investments. Fifty-three percent of sponsors cite investment menu changes that were driven by a desire for better performance.

“In our conversations with plan sponsors and advisers, investment performance is now top-of-mind, given the potential for continued market volatility,” Pathe says. “Plan advisers can play a more active role by proactively reviewing plans’ investment menus with sponsors and working to address their concerns.”

Other findings show 57% of sponsors offer financial wellness programs to employees. Among those with an adviser, 59% offer a financial wellness program, compared to 38% of sponsors without an adviser. Sixty-one percent of those with a financial wellness program say it has had a strong positive impact on employees.

Fifty-six percent of sponsors have a high deductible health care plan, and of those that do, 86% offer a health savings account (HSA). However, it appears that not too many workers understand the value of an HSA, as only 40% enroll.

The Markets May 19, 2020

Why It’s Hard to Build ESG Consensus

A big part of the challenge is that everyone’s view of exactly what constitutes social and environmental responsibility is different.

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In a recent conversation with PLANADVISER, James Stenstrom, senior manager of asset and liability at CAPTRUST, and Eric Bailey, principal and financial adviser at CAPTRUST, ran through some of the findings that most surprised them from a new survey of endowments and foundations.

One enlightening portion of the survey focused on the perception and use of investments with environmental, social and governance (ESG) themes. While most organizations polled (70%) do not currently leverage ESG investing themes, the survey shows that foundations with less than $100 million in assets are much more likely to use ESG funds (30%) when compared with larger organizations (14%). Of those that do use ESG investing strategies, the most common implementation methods are “mission-aligned investing” and “broad ESG mandates.” Most organizations (76%) indicate “negative screening” as the most common tool, as opposed to positive identification.

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“It is very surprising that the majority of organizations in the U.S. nonprofit community are not following any type of concerted ESG strategy,” Bailey says. “Considering the conversations we have with our clients, I suspect that a big part of this dynamic is the fact that everyone’s view on environmental stewardship and social responsibly is different.”

Bailey and Stenstrom say, in their experience, it is not uncommon to get a board of directors or an investment committee together, even in a very unified organization, and find that half the room supports a given cause, while the other half is very much against it.

“Even in these very mission-driven organizations, there is such a diversity of opinion out there,” Bailey says. “It’s also important to consider geography. If you’re dealing with a national entity or board, some people may be coming from a very oil rich community. They are going to look at the issue of fossil fuels and climate change differently than those people in the organization coming from a more progressive region of the country. Building consensus is hard.”

Stenstrom says it was surprising to see that smaller organizations are actually leading the way in terms of ESG use, as it is often the case that larger organizations are the first to establish new and innovative investing strategies.

“With ESG, this is seemingly not the case,” he says. “We think this is because the larger the organization, the more diverse will be the stakeholders that are going to be involved in managing the portfolio. Bigger organizations have bigger boards and investment committees, which opens up more of an opportunity for disagreement. On the other hand, smaller entities generally have fewer stakeholders involved in a given decision.”

Looking forward, CAPTRUST finds only 2% of respondents plan to reduce their allocation to ESG funds. Half of respondents (51%) are undecided when considering ESG funds, while more than a third of respondents plan to maintain their investments and another 9% plan to increase allocation into the funds.

Published last year, the ESG Investor Sentiment Study from Allianz Life Insurance Company of North America found that, in the U.S., social and governance issues are seen to be equally as important or more important than environmental record when consumers decide whether or not to invest in or do business with a company. Furthermore, the study found that a company’s ESG profile plays a significant role in its overall reputation, as a majority of consumers believe companies focused on ESG issues have better long-term prospects.

When asked about the importance of a variety of ESG topics in making a decision to invest in a company, 73% of American consumers noted environmental concerns such as natural resource conservation or a company’s carbon footprint/impact on climate change. However, the same percentage emphasized social issues such as working conditions of employees or racial/gender equality, and 69% highlighted governance topics such as transparency of business practices and finances or level of executive compensation as being significant in their decisions.

Also notable, the Allianz study found a significant gap exists between what people say is important and how they actually invest. More than three-quarters of respondents said the following ESG issues were important in their decision to invest: provides safe working conditions for employees (84%); gives transparency in business practices and finances (81%); provides living wages to employees (80%); provides quality health insurance to employees (78%); and conserves natural resources (76%). Yet less than half said they chose to invest/not invest based on those same business practices.

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