Adviser Accountability
Hiring an adviser is often the way they address the fact that they need help to run their plan. The retirement plan advisers I hear speak at conferences and events talk about their “value” and the “leadership” they provide when working with their clients. They discuss being “a trusted adviser” who is an “extension of the plan committee and plan sponsor’s team.”
Do those phrases sound like something you’ve expressed? For many of you, I imagine they do.
When you are promoting your services or pitching your firm to a client, what is your value? Is it in your ability to craft an investment lineup? Is it helping plan sponsors improve their fiduciary processes and plan oversight? Is it in improving plan statistics and retirement outcomes? Most advisers I know would say the answer to all of those is “yes.” However, the results of our latest Adviser Value Survey might not support those beliefs.
For numerous years, we have segmented the data from the annual PLANSPONSOR Defined Contribution (DC) Survey to compare defined contribution plans where the sponsor uses an adviser with those where it does not. We titled the results the PLANADVISER Adviser Value Survey. When we first decided to review the data in this way, I was sure we would find that advisers make a quantifiable impact on their retirement plan clients. I expected that we would see significantly better plan outcomes; after all, our Retirement Plan Adviser of the Year Awards seek to honor those advisers and adviser teams who markedly improve plan participation and deferrals, as well as the overall health of the plan and the retirement readiness of individual participants.
Our survey findings show that retirement plan advisers do add value in helping plan sponsors fulfill their fiduciary duties, craft an investment policy statement (IPS), hold regular committee meetings, monitor providers and investments, and so on. However, when we talk about retirement readiness, we refer to plan participation, participant deferral rates and evaluating participant outcomes in the form of sufficient income replacement rates. I assumed that plan sponsors using advisers would, of course, find themselves on the higher end of the spectrum in these measures. I was wrong.
Our survey did not find such a correlation. In fact, it found no major difference in those measures. So, where is the value of the adviser in terms of participant outcomes?
I live in New York City, where the new mayor is behind a huge push for a public pre-Kindergarten system for all, because the benefits of early childhood education are undeniable. Children from affluent families, the mayor says, get put in private schools or receive an abundance of educational opportunities from their parents, setting them up for success later in life while the less affluent fall behind. How different is the retirement plan system? Are some plans going to be successful—or not—regardless of the education they offer, regardless of their adviser, because the company or organization has committed to a certain match level or required salary deferral? Perhaps. But when there is minimal quantifiable difference across the board, it should make you—and your clients—think.
When I write for plan sponsors, I encourage them to ensure that they are receiving valuable and quantifiable service from their plan consultants and advisers. I don’t doubt that you improve the plans of your clients. However, the critical question for you to ask yourself (before your clients do) is: Are you improving them enough?