Participants Report Low Levels of Trust in Recordkeepers, Advisers

The way retirement plan participants are communicated with drives higher trust levels.

Generalized retirement plan participant trust levels in financial institutions fell from 13% in 2015—Top Box rating of “can just about always trust them to do the right thing”—to only 8% in 2016, according to the National Association of Retirement Plan Participants (NARPP’s) 2016 Participant Trust & Engagement Study.

Trust in one’s respective retirement plan recordkeeper held steady (but still low) at 26% in 2016 (28% in 2015).

Confidence in the people running financial institutions was down slightly (20% to 17%) yet unchanged for the recordkeeper, at 40% in both years. On a mildly positive note, those indicating they have had a bad experience with their recordkeeper dropped from 12% to just 7%.

Overall recordkeeper satisfaction scores dropped somewhat from 2015 (41%) to 2016 (36%). The key drivers of overall satisfaction were trust, education, and partnering.

New in this year’s study, trust in financial planners/advisers was only at 9%, meaning participants felt they could “just about always trust them to do the right thing”. Also new, trust in one’s employer registered at a level similar to that of the recordkeeper at 24%.

While still low, scores for satisfaction regarding the information they receive from their recordkeeper’s communication programs has gone up from 38% to 43% “very satisfied”. Factors such as “Information presented to me is always in my best interest” (48%), “Fee information is presented in a way that is easy to understand” (45%), and “the materials are relevant to my personal financial situation” (44%) received moderate scores, but are still below 50%. Only 28% of participants said materials provided by their recordkeeper “motivate me to take action.”

NEXT: Keys to increasing trust and information satisfaction

According to the study report, “Cracking the code on participant engagement in retirement planning,” recordkeeper trust among participants is created by a number of overlapping factors. Among these, communication style with the participant is pre-eminent.

Specifically, the single-most powerful driver of recordkeeper trust (four times stronger than the second most powerful driver) is presenting information to participants in a way that is perceived as being in their best interests. The second most powerful driver of recordkeeper trust is presenting information in a way that motivates people to take an action. Maintaining a positive message (i.e. messages that avoid a fearful or negative tones) is essential, NARPP says. Information such as low projections of retirement replacement ratios and probability of not running out of money may be eroding trust.

The third most important driver of recordkeeper trust is presenting fee information in a way that is easy to understand and is linked to feeling comfortable with financial planning for the future. These are both a function of communication styles and are completely within the control of the recordkeeper and plan sponsor. Lastly, recordkeeper trust has the potential to be lowered by materials containing complicated financial language. When participants don't understand what is being said to them, trust plummets.

The factors driving participants’ satisfaction with the information provided to them by recordkeepers, in order of impact, are:

  • The information presented to me is always in my best interest;
  • The materials are relevant to my personal financial situation;
  • Fee information is presented in a way that is easy to understand;
  • The materials motivate me to take action; and
  • The materials do not contain complicated financial language.
The 2016 study included responses from 5,092 randomly selected participants actively contributing to their defined contribution (DC) retirement plans.