Staying True to “The Three F’s”

When I speak with advisers and others in the industry about the value retirement plan advisers bring to their clients, in the last few years the conversation has occasionally turned to the role that “the three F’s”—funds, fees and fiduciary—play in a retirement plan adviser’s practice.
Reported by Alison Cooke Mintzer

In the past, a retirement plan adviser could probably say to a plan sponsor, “I will help you navigate ‘funds, fees and fiduciary responsibilities,’” and he would win business because the sponsor would see his ability to address those topics as evidence of his specialization in the field. Today, just being able to handle the three F’s is no longer sufficient, and many specialists even view those basics as outdated.

Most of you seem to agree. During our CEO Roundtable panel at the PLANADVISER National Conference last year, we asked the audience whether their value propositions included “anything outside of the three F’s,” and the majority of respondents said yes. The concept of going beyond these requirements also comes up repeatedly in our PLANSPONSOR Retirement Plan Adviser of the Year awards program, when advisers discuss their differentiation and messaging. In my experience, advisers often speak about their peers who are still “touting the three F’s” in a somewhat disparaging way.

What does it mean for your plan if those areas of focus are now outmoded? If advisers claim they do more than simply guide plan sponsors through those topics, what does that entail?

For most advisers, I think it means that instead of serving in a more limited capacity as an investment adviser, you are being more explicit in your role as a full-fledged retirement plan consultant. In the end, investments are only one component sponsors need help with when dealing with defined contribution (DC) plans.

In my opinion, the best retirement plan advisers also focus on plan design elements and offer advice about how to improve participation rates, deferral rates, and participants’ asset allocation—whether through target-date funds (TDFs), model portfolios, managed accounts or some other diversified solution—among other indicators of plan success.

I disagree, however, that embracing these other aspects of your advisory role means we need to throw out the three F’s. In fact, I think they are still extremely relevant, and in my experience, plan sponsors still value your guidance in those areas.

In the end, while we know that advisers have to do much more than help plan sponsors choose funds, isn’t there still some important fund-picking and benchmarking to be done? The selection of the asset-allocation solution and ongoing management of participant usage is quite relevant, as shown by continuing conversations around such topics in Washington, and can open the door for an adviser to bring the concepts of auto-enrollment and re-enrollment into the “fund” discussion. The use of retirement income products could likely fit into that conversation as well.

Fees continue to be relevant as advisers are asked what they charge, and as plan sponsors increasingly seek to understand what they, their plan and the company pay for. Going forward, I expect the fee conversation to remain relevant alongside discussions of disclosure, investment costs and fee equalization. I also think the intersection of fees and funds will become more pronounced as the Department of Labor (DOL) attempts to clarify how best to present accumulated savings as an income stream in retirement—and how various fee levels can affect your long-term savings (and whether that will be shown on a statement).

And that third F? Well, “fiduciary” never goes out of style. Retirement plan advisers should reassure clients that they themselves are fiduciaries and clearly sit at the same side of the table as the plan sponsor. There will always be opportunities for advisers to help plan sponsors make decisions that are in their best fiduciary interests, and most of the conversations about improving participant outcomes can be linked back to a plan sponsor’s fiduciary concerns. In fact, you could potentially say that everything an adviser does fits under the fiduciary designation—including everything I just mentioned above.

My point is that, yes, advisers need to do more to understand the total needs of retirement plan sponsors, but disparaging the three F’s might do more harm than good. While there is more to the plan than just its funds, fees and fiduciary, those factors remain the cornerstone of a sound retirement plan. Plan sponsors pay attention to those words, and using the three F’s as table stakes gives advisers the opportunity to broaden their actions and create higher odds for having strong plan fiduciaries and achieving dignified participant retirements.