Adviser Responsiveness Does Not Equal Engagement

Ron Cohen, head of DCIO sales at Wells Fargo, compares the surprisingly wide gap between what plan sponsors expect from their advisers versus what advisers generally prioritize. 

Wells Fargo has published a new analysis for the retirement plan advisory community, dubbed “The Science of Superior Service,” which offers insight on the “gap between what plan sponsors want and what advisers think they want.”

Talking through the research with PLANADVISER, Ron Cohen, head of defined contribution investment only (DCIO) sales at Wells Fargo, said that at a high level, the analysis clearly shows client satisfaction hinges on careful control of expectations and actions. Not really a surprise, the bigger the average plan size in a practice, the bigger the revenue growth. At the same time, as average plan size increases, Wells Fargo finds the perception of what advisers believe is important to the sponsor evolves.

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For example, among small plans there is less of an emphasis among advisers on “helping the client manage overall costs.” The same is true of “recommending plan efficiencies” and “acting as a 3(21) fiduciary,” which seem to be much more of a priority when advisers think about serving their larger plan clients. Interestingly, the advisers surveyed by Wells Fargo seem to think smaller plan clients are more concerned with the adviser “meeting one-on-one with employees” and “discussing individual retirement account (IRA) rollovers.”

Cohen observed that these conceptions among advisers are only somewhat accurate and do not always reflect the broad characteristics of what small and large plans look for in the advisory relationship. He pointed to clear disconnects between what advisers think and what sponsors expect, warning that plan size is far from the only determinant of what will be important to a given plan sponsor.

“Take regulatory compliance and follow through,” Cohen said. “The majority, 70%, of advisers feel this is among the most challenging avenues through which to differentiate their quality of client service, yet it is also one of the most important factors to plan sponsors—ranked as a top differentiator. Along the same lines, the data shows 59% of advisers feel offering plan insights about participant behavior is challenging, but it also ranks among the top services that plan sponsors view as a differentiator.”

NEXT: Proactive advisers do better

The analysis goes on to consider “services that are difficult to provide and have a low impact on success” compared with “services that are difficult to provide but have a high impact on success.” In the former category are “understanding participant behavior” and “providing easily understood explanations of retirement topics,” while the latter category includes “keeping up with industry product development,” “ensuring regulatory compliance” and “discussing fees charged and value provided.”

Cohen pointed to “proactive recommendations” and “responsiveness and thoroughness” as essential adviser characteristics, whatever market segment is being served. Of course, there is no simple formula for “being proactive or responsive,” and there is actually evidence in the data that some advisers actually overvalue their responsiveness and undervalue their communication skills and the true level of their engagement with plan sponsor clients.

“When we dug deeper and analyzed the data, we saw that responsiveness to the plan sponsor is simply the table stakes. We saw that the No. 1 differentiator, according to plan sponsors, is simply showing serious and consistent engagement with the plan, yet a third of advisers find this to be challenging,” Cohen explained. “Understanding participant behavior is also important.”

Indeed, while “understanding participant behavior” ranks lower among services advisers believe to be important, the topic ties in closely to “educating participants,” “defining plan health” and “engagement”—all of which rank very high with sponsors.

“Advisers who rated the importance of understanding participants a 4 or 5 (out of 5) are twice as likely to report revenue growth of 25% or more in the past three years,” Cohen concluded.

Additional research findings and other information is available here.  

Disconnect Between Shift in Benefits Spend and What Employees Want

"Employers may want to reevaluate the allocation of benefit dollars to better respond to employees’ needs and concerns,” says Alexa Nerdrum with Willis Towers Watson.

Over the last decade, escalating health care costs, historically low interest rates and an aging workforce have made employee benefits much more expensive, while historically low productivity growth has kept compensation budgets lean, according to a Willis Towers Watson analysis.

The analysis, Shifts in Benefit Allocations Among U.S. Employers, found the total cost of employer-provided benefits—health care, retirement and postretirement medical—rose from 14.8% of pay in 2001 to 18.3% of pay in 2015, a jump of 24%. During this period, health care costs for active employees more than doubled, rising from 5.7% to 11.5% of pay. Conversely, total retirement benefits, which include defined benefit (DB), defined contribution (DC) and postretirement medical plans (PRM), declined by 25% between 2001 and 2015, from 9.1% to 6.8% of pay.

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Willis Towers Watson says the reason retirement costs declined is that over that period, many employers shifted away from DB plans as their primary retirement vehicle, typically replacing them with an enhancement to the existing DC plan. In fact, DC benefits increased by 1.6 percentage points between 2001 and 2015, which wasn’t enough to replace the 2.9 percentage-point loss in DB plan benefits. Eliminating PRM for new hires and reducing employer subsidies also played a role in reducing overall retirement cost, as PRM values declined by one percentage point over the analysis period.

These trends reflect a seismic shift in the allocation of benefit dollars, Willis Towers Watson says. In 2001, active health care costs comprised about two-fifths (42%) of benefits while retirement benefits made up the remaining three-fifths (58%). By 2015, the ratio had flipped, with active health care benefits accounting for slightly less than two-thirds of costs (64%) and the retirement share dropping to slightly more than one-third (37%).

NEXT: Benefit spend not in line with what employees want

Willis Towers Watson’s Global Benefits Attitudes Study (GBAS) has surveyed employees about their attitudes, preferences and behaviors around their benefits, health and finances. The 2015/2016 survey results are based on 4,721 full-time U.S. employees. The survey results suggest a disconnect between employees’ primary concerns, needs and preferences and the reshuffling of employer dollars.

Roughly half of responding employees say they often worry about their financial future, rising to 55% for Millennials. Many Millennials do not expect to receive the same level of retirement benefits enjoyed by older workers, and three-quarters assume that their generation will be worse off than their parents’ generation.

Why should this matter to employers? Willis Towers Watson notes that employees bring their anxieties and distractions to work each day, where their worries impair performance, trigger lost days, raise stress levels and ultimately drag down productivity.

Employees’ financial concerns can also create longer-term problems for employers. Employees who are worrying about the future or struggling financially—which include 42% of the typical workforce—are more likely to continue working well past their preferred retirement age. Forty-four percent of older workers (ages 55 and older) who are concerned about their future finances and 64% of those who are struggling financially expect to work to age 70 or later. In addition, nearly half of financially struggling older employees feel stuck and would retire if they could afford to do so. It’s clear financial issues are impacting employee performance in a big way and the toll is ultimately a drag on business results, the firm says.

“With the shift from DB to DC plans well established, employers may want to reevaluate the allocation of benefit dollars to better respond to employees’ needs and concerns,” says Alexa Nerdrum, senior retirement consultant at Willis Towers Watson. “This could consist of more tax-efficient saving mechanisms, such as the broader use of health savings accounts, as well as wiser spending on health care. While the solution for each organization will be unique, employers need to balance cost with the long-term returns on providing benefit packages that will be highly valued by their workers.”

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