At the PLANADVISER National Conference last week, Adrian Hodge, SVP, Division Manager, Fidelity Investments, told attendees that the industry is moving to results-oriented benchmarking. Plans are using behavioral finance to drive results and asking, “Is the plan getting participants to an age they can retire?” This requires benchmarking investment diversification and deferral levels of participants, he said.
Attila Toth, Principal at Portfolio Evaluations, said the measure of plan success is now the income replacement ratio of participants.
As for knowing whether the plan has the best investment lineup, John Leonard, VP of Distribution, Oppenheimer Funds, suggested looking at participant demographics and mindset. To benchmark investments, he said, sponsors and advisers should ask “What’s the best way to give participants investments that will help them meet retirement income planning needs?”Toth says the trend in his firm is to reduce the number of investment options available from which participants can choose. However, some participants are louder than others and say what they want, as in a specific investment option. This is where benchmarking comes into play, according to Toth. Advisers should look at how many other similar plans offer that requested investment.
When benchmarking providers, Hodge recommended getting a list of services from each provider and determining how each service benefits the plan sponsor. Leonard added that if an adviser knows how much revenue is needed to service each participant account, he can use that as a guide to benchmark provider fees or to decide his own pricing structure.
Toth also suggested talking with providers to ask what value they think they are adding. Perform a Request for Information (RFI), and if the current vendor’s pricing is off, present (anonymously) the costs of others and see how the provider responds.
To make sure the retirement plan committee is successful, Toth said to offer a fiduciary duties checklist; make sure the committee is having enough meetings and taking enough minutes.
According to Hodge, some good benchmarking tools available include PATHFINDER, Fiduciary Benchmarks, RPAG, BrightScope, and the 401(k) Book of Averages. Hodge said advisers could use these to build their own benchmarks and eventually promote it to expand their businesses.Toth added that advisers could also reach out to other advisers and ask about benchmarks.