September 20, 2011

A Favorite Blend

Advisers share their preferences for helping clients put together a plan menu on a recordkeeper’s platform.

Reported by

As plan sponsors cope with regulation and legislation, Baby Boomer retirements, and participant questions and concerns about market fluctuations, there is a growing recognition of the need for ongoing holistic service from a third party, such as retirement plan advisers. This reinforces the vital service that retirement plan advisers offer when helping plan sponsors in their selection of recordkeepers and investment managers or investments for their defined contribution plans.

Helping a plan sponsor navigate the vast array of investment choices offered in today’s open architecture environment is a service many plan sponsors take for granted. In the aftermath of recent market events, it is easy to imagine that some investment menus might require updating, and that advisers will be called in to help explain what other options there are and what an investment committee can—and should—do about them.

Arguably one of the most critical choices a retirement plan makes—and one in which an adviser’s experience and expertise is most valued—is the investment menu. These days “open architecture” structures are quite common, and even very small plans, certainly those that avail themselves of an adviser’s influence, frequently can avail themselves of that flexibility.

Performance “Appraisal”

During what admittedly has been one of the more volatile investing environments in memory, when it came to selecting a plan’s investment lineup, the 2011 PLANADVISER Adviser Experience Survey found some shifts from last year’s results. In evaluating the asset managers most appropriate for the plans they review, advisers ranked performance first (89%), followed by consistent investment style (87.1%), with fee structure for the plan slipping back some, albeit to a close third at (81.0%). Although these were the same top three as last year—and performance continued to top the rankings, despite admonitions about relying on historical returns—this year, a consistent investment style was more prized in the rankings.

There was, however, a greater divergence from last year’s results when it came to the ranking of most important criteria for selecting plan funds. Here, performance versus benchmarks (88.1%) again led the pack, but fee structure for the plan jumped from third place last year to second this year (76.7%), while style drift (67.9%) took third. Last year’s third-place finisher, five-year performance (71.4%), fell to fifth this year, perhaps a reflection of the impact of those past five years.

Despite the discussion around target-date funds and their prevalence on fund menus, asked what funds belong on an ideal 401(k) menu, adviser respondents ranked target-date funds eighth (77.2%), down from fifth last year. The fund category that garnered the most attention, as it did in 2010, was international (with 95.8% of respondents saying the option belonged on a DC menu), although this was a slight decrease from the 99.3% of respondents that thought so in 2010. This was followed by large-cap value and large-cap core (tied with 91.0% each), while fixed income/stable value and large-cap core (89.8% and 88%, respectively) rounded out the top five.

Finding Keepers

In selecting recordkeeper platforms, fees are understandably front and center. Like last year, fee structure to the plan was the most common consideration, cited by 88.3%. Meanwhile, “value for price”—a new category this year—ranked second (80%), pushing aside last year’s second-ranked investment options to third (78.6%), as well as participant education—last year’s third-place consideration—to fourth in this year’s results. Least most important considerations were recommendation by home office (4.1%), fee structure for adviser (7.6%), and wholesalers (9.0%).

A key fiduciary admonition is to ensure that the fees and services rendered to the plan are reasonable. That, of course, requires an understanding of what services are rendered, what the associated fees are—and whether the combination is “reasonable.” Based on the results of this year’s survey, while advisers may have their favored providers, overall they put their clients first and put service levels to themselves low on the totem pole.

Methodology

In July 2011, approximately 9,400 adviser subscribers to PLANADVISER magazine were asked to respond to a 100-question survey, developed by the PLANADVISER editorial and research teams. From that, 383 complete responses were received from qualified plan advisers, with another 382 partial respondents. The questions included in the survey pertained to size and scope of the adviser’s qualified plan business, practice management, compensation, client service, and assessments of defined contribution providers and investment managers,

In order to rate DC recordkeepers, advisers had to answer affirmatively that they were “personally involved in evaluating and recommending defined contribution plan providers/in an advisory capacity with your qualified plan clients”; 163 advisers answered affirmatively. For a provider to qualify to be listed in the perception category, it had to receive a minimum of 50 favorability responses.

In order to rate investment managers, respondents had to be “personally involved in evaluating and recommending fund choices in an advisory capacity with your qualified plan clients”; 195 advisers answered affirmatively. —Alison Cooke Mintzer

Best Recordkeepers

Overall service to micro plans (under $5MM)
1	John Hancock Retirement Plan Svcs	18.8%
2	Great-West Retirement Services	14.9%
3	The Hartford	7.9%
4	ADP Retirement Services	5.9%
4	American Funds Distributors	5.9%
4	Ascensus	5.9%
4	OneAmerica (AUL)	5.9%

Overall service to small plans ($5MM-$50MM)
1	Fidelity Investments	15.2%
2	Great-West Retirement Services	10.5%
3	Principal Financial Group	7.6%
4	John Hancock Retirement Plan Svcs	5.7%
4	MassMutual Financial Group	5.7%
4	Putnam Investments	5.7%

Overall service to mid-size plans ($50MM-$200MM)
1	Charles Schwab	11.1%
1	Diversified Investment Advisors	11.1%
1	Fidelity Investments	11.1%
4	New York Life Retirement Plan Svcs	9.5%
5	Prudential Retirement	7.9%
5	T. Rowe Price	7.9%


Overall service to large plans (more than $200MM)
1	Fidelity Investments	27.9%
2	Charles Schwab	11.6%
2	New York Life Retirement Plan Svcs	11.6%
4	Bank of America Merrill Lynch	9.3%
4	Vanguard	9.3%

Adviser sales/marketing support
1	John Hancock Retirement Plan Svcs	16.9%
2	Fidelity Investments	11.7%
3	Principal Financial Group	9.1%
4	Great-West Retirement Services	6.5%
4	Transamerica Retirement Services	6.5%

Adviser support post-sale
1	Principal Financial Group	11.8%
2	Fidelity Investments	9.2%
3	Great-West Retirement Services	7.9%
3	John Hancock Retirement Plan Svcs	7.9%
3	The Hartford	7.9%

Fee structure for advisers
1	Great-West Retirement Services	12.7%
1	The Newport Group	12.7%
3	The Hartford	7.9%
4	Charles Schwab	6.3%
4	DailyAccess Corporation	6.3%

Participant education materials
1	John Hancock Retirement Plan Svcs	17.5%
2	Fidelity Investments	12.5%
3	MassMutual Financial Group	11.3%
4	Principal Financial Group	8.8%
5	Putnam Investments	7.5%

Plan participant support
1	Fidelity Investments	17.3%
2	Principal Financial Group	9.3%
3	John Hancock Retirement Plan Svcs	8.0%
3	Putnam Investments	8.0%
3	Transamerica Retirement Services	8.0%

Plan sponsor education materials
1	Fidelity Investments	18.2%
2	John Hancock Retirement Plan Svcs	10.6%
2	Principal Financial Group	10.6%
4	MassMutual Financial Group	6.1%
4	Prudential Retirement	6.1%
4	Transamerica Retirement Services	6.1%



Plan sponsor support
1	Principal Financial Group	10.1%
2	Great-West Retirement Svcs	7.2%
2	Transamerica Retirement Svcs	7.2%
4	John Hancock Retirement Plan Svcs	5.8%
4	Putnam Investments	5.8%

Reputation
1	Fidelity Investments	26.0%
2	John Hancock Retirement Plan Svcs	9.6%
3	Principal Financial Group	6.8%
4	American Funds Distributors	5.5%
4	Charles Schwab	5.5%
4	New York Life Retirement Plan Svcs	5.5%

Supporting materials
1	John Hancock Retirement Plan Svcs	17.2%
2	Fidelity Investments	12.5%
3	Principal Financial Group	9.4%
3	Prudential Retirement	9.4%
5	American Funds Distributors	4.7%
5	OneAmerica (AUL)	4.7%

Wholesalers
1	Fidelity Investments	9.1%
1	Principal Financial Group	9.1%
1	The Hartford	9.1%
4	Great-West Retirement Services	7.6%
5	John Hancock Retirement Plan Svcs	6.1%
5	MassMutual Financial Group	6.1%
5	OneAmerica (AUL)	6.1%

Value-added adviser services
1	Principal Financial Group	12.9%
2	Fidelity Investments	9.7%
3	John Hancock Retirement Plan Svcs	9.7%
4	J.P. Morgan Retirement Plan Svcs	8.1%
5	Putnam Investments	6.5%

Value for price
1	Great-West Retirement Services	15.5%
2	American Funds Distributors	11.3%
3	Fidelity Investments	7.0%
4	Putnam Investments	7.0%
5	Vanguard	5.6%

Perception of Recordkeepers

Perception of Recordkeeper	QUALIFIED respondents	z very favorable	zsomewhat favorable	znotfavorable
ADP Retirement Services	74	17.6%	6.8%	75.7%
American Funds Distributors	100	21.0%	46.0%	33.0%
Ascensus	62	16.1%	53.2%	30.6%
Bank of America Merrill Lynch	57	12.3%	14.0%	73.7%
Charles Schwab	64	28.1%	43.8%	28.1%
CPI	52	28.8%	51.9%	19.2%
Diversified Investment Advisors	70	28.6%	57.1%	14.3%
Fidelity Advisor	95	29.5%	45.3%	25.3%
Fidelity Investments	89	27.0%	42.7%	30.3%
Great-West Retirement Services	106	25.5%	37.7%	36.8%
The Hartford	94	20.2%	46.8%	33.0%
ING	85	9.4%	43.5%	47.1%
John Hancock Retirement Plan Services	105	27.6%	41.0%	31.4%
Lincoln Financial Group	58	8.6%	31.0%	60.3%
MassMutual Financial Group	80	32.5%	42.5%	25.0%
Nationwide Financial	70	7.1%	30.0%	62.9%
Nationwide Retirement Solutions	66	7.6%	33.3%	59.1%
New York Life Retirement Services	52	30.8%	48.1%	21.2%
Newport Group	63	31.7%	44.4%	23.8%
OneAmerica	60	23.3%	41.7%	35.0%
OppenheimerFunds	52	13.5%	46.2%	40.4%
Paychex	72	5.6%	16.7%	77.8%
Principal Financial Group	101	18.8%	45.5%	35.6%
Prudential Retirement Services	65	29.2%	41.5%	29.2%
Putnam Investments	54	42.6%	29.6%	27.8%
The Standard	57	21.1%	49.1%	29.8%
T. Rowe Price	58	51.7%	36.2%	12.1%
TIAA-CREF	63	11.1%	14.3%	74.6%
Transamerica Retirement Services	78	19.2%	55.1%	25.6%
Vanguard	71	40.8%	32.4%	26.8%
Wells Fargo	54	13.0%	51.9%	35.2%

Criteria in deciding appropriate recordkeepers (Percentage of mentions in top 5)

Adviser support/value-added adviser services	46.2%
Brand recognition	24.8%
Fee structure for adviser	7.6%
Fee structure for plan	88.3%
Investment options	78.6%
Participant education	58.6%
Recommended by home office	4.1%
Reputation	46.2%
Supporting materials	35.9%
Value for price	80.0%
Wholesalers	9.0%

Best Investment Firms

Adviser support
1	BlackRock	12.9%
2	J.P. Morgan	10.0%
3	American Funds	8.6%
4	Columbia Management	7.1%
5	Invesco	5.7%

Fund fact sheets
1	American Funds	20.9%
2	BlackRock	9.3%
2	Vanguard	9.3%
4	Fidelity Investments	7.0%
4	Franklin Templeton Investments	7.0%

Participant education materials
1	John Hancock Funds	13.5%
2	American Funds	11.5%
3	BlackRock	9.6%
4	Fidelity Investments	7.7%
4	Principal Funds	7.7%
4	Vanguard	7.7%

Plan participant support
1	Fidelity Investments	19.1%
2	John Hancock Funds	10.6%
3	BlackRock	8.5%
3	Putnam Investments	8.5%
5	Principal Funds	6.4%
5	Vanguard	6.4%

Plan sponsor education materials
1	Fidelity Investments	14.0%
2	John Hancock Funds	8.0%
2	Principal Funds	8.0%
2	Putnam Investments	8.0%
5	AllianceBernstein	6.0%
5	American Century	6.0%
5	BlackRock	6.0%
5	J.P. Morgan	6.0%

Plan sponsor support
1	Fidelity Investments	13.0%
2	BlackRock	10.9%
3	American Funds	8.7%
3	Putnam Investments	8.7%
3	Charles Schwab	8.7%

Investment value for price
1	Vanguard	33.3%
2	American Funds	23.3%
3	T. Rowe Price	8.3%
4	BlackRock	3.3%
4	DFA	3.3%
4	Fidelity Investments	3.3%
4	The Hartford	3.3%

Reputation
1	American Funds	25.0%
1	Vanguard	25.0%
3	Fidelity Investments	16.1%
4	PIMCO	7.1%
5	BlackRock	5.4%

Supporting materials
1	American Funds	14.3%
2	BlackRock	11.9%
3	J.P. Morgan	9.5%
4	Fidelity Investments	7.1%
4	Invesco	7.1%
4	Principal Funds	7.1%

Wholesalers
1	Franklin Templeton Investments	8.1%
2	Principal Funds	6.5%
3	American Funds	4.8%
3	Columbia Management	4.8%
3	The Hartford	4.8%
3	John Hancock Funds	4.8%
3	OppenheimerFunds	4.8%

Preferred fund families (number of mentions in top 5)
1	American Funds
2	PIMCO
3	Vanguard
4	T. Rowe Price
5	BlackRock

Mutual funds most recommended to a plan sponsor
1	PIMCO Total Return
2	American Funds EuroPacific Growth
2	Vanguard 500 Index
4	Thornburg International Value
5	BlackRock Global Allocation
5	T. Rowe Price Target Retirement Series

Ideal DC plan fund lineup	Respondents	Active	Passive	Fund Most Recommended
Target-date/Lifecycle	77.2%	72.1%	27.9%	T. Rowe Price Retirement Date Fund
Target-risk/Lifestyle	53.9%	81.1%	18.9%	John Hancock Lifestyle
Managed accounts	36.5%	91.8%	8.2%	N/A
Fixed income/stable value	89.8%	86.0%	14.0%	PIMCO Total Return (21)
Money market	55.7%	74.2%	25.8%	Vanguard Prime Money Market (10)
Large cap value	91.0%	88.8%	11.2%	BlackRock Equity Dividend (8)
Large cap core	88.0%	39.5%	60.5%	Vanguard S&P 500 Index (23)
Large cap growth	91.0%	89.5%	10.5%	American Funds Growth Fund of America (8)
Mid cap value	72.5%	90.0%	9.1%	Perkins Mid Cap Value, RidgeWorth MidCap Val. (9)
Mid cap core	79.0%	47.7%	52.3%	Vanguard Mid-Cap Index (16)
Mid cap growth	72.5%	90.9%	9.1%	Ivy Mid Cap Growth (5)
Small cap value	74.3%	91.1%	8.9%	Allianz NFJ Small Cap Value (7)
Small cap core	82.0%	46.7%	53.3%	Vanguard Small-Cap Index (14)
Small cap growth	71.3%	92.4%	7.6%	Lord Abbett Developing Gr, Vanguard Sm Cap Gr Index (5)
International	95.8%	90.0%	10.0%	American Funds EuroPacific Growth (22)
REIT	64.7%	88.9%	11.1%	Cohen & Steers Realty (7)
Retirement income	28.7%	89.6%	10.4%	Prudential IncomeFlex (4)
Annuities	10.8%	88.9%	11.1%	n/a
Exchange-traded fund (ETF)	33.5%	35.7%	64.3%	iShares (10)
Hedge funds	7.8%	76.9%	23.1%	N/A
Alternative investments	37.7%	87.3%	12.7%	Goldman Sachs Satellite Strategies (4)
Emerging markets investments	76.6%	89.8%	10.2%	Oppenheimer Developing Markets (22)
Brokerage window	24.0%	85.0%	15.0%	n/a

Criteria ON deciding Appropriate asset managers
Adviser support/value-added adviser	33.1%
Brand recognition	27.6%
Consistent investment style	87.1%
Fee structure for adviser	6.7%
Fee structure for plan	81.0%
Manager tenure	66.3%
Participant education	12.3%
Performance	89.0%
Recommended by home office	8.0%
Reputation	39.3%
Supporting materials	18.4%
Wholesalers	9.8%

Criteria on deciding Appropriate funds
Adviser support	3.9%
Brand	18.2%
Fee structure for adviser	6.9%
Fee structure for plan	76.7%
Manager tenure	66.7%
Performance (1-year return)	25.2%
Performance (5-year return)	61.6%
Performance vs. benchmarks	88.1%
Plan demographics	36.5%
Style drift	67.9%
Supporting materials	10.1%

Favorite target-date/lifecycle fund suite
1	T. Rowe Price: Retirement Date Funds	32.2%
2	Vanguard: Vanguard Target Retirement Funds	16.5%
3	American Century: LIVESTRONG Funds	13.9%
4	J.P. Morgan: J.P. Morgan SmartRetirement	12.2%
5	John Hancock Funds: JH Lifecycle	2.6%
5	Barclays Global Investors: LifePath	2.6%
5	Great-West: Maxim Lifetime	2.6%

Favorite target-risk/lifestyle fund suite
1	John Hancock Lifestyle		15.3%
2	Vanguard LifeStrategy		14.1%
3	Manning & Napier Pro-Blend		8.2%
4	Franklin Target Funds		7.1%
5	Russell Investment Life Points Target Risk		5.9%
If you recommend asset-allocation funds, are they
Target-date/lifecycle		70.8%
Target-risk/lifestyle		29.2%

If you recommend target-date or target-risk funds, are they
Proprietary funds from the plan’s recordkeeper	20.40%
Not the funds sponsored by the plan’s recordkeeper	59.90%
As asset-allocation overlay of funds in the plan	16.10%
Managed accounts	3.60%