Retirement Plan Adviser Use Expected to Increase

The need for ongoing holistic service from a third party is leading many plan sponsors to opt for a retirement plan adviser that works on a fee or retainer basis, according to research from Diversified.

According to Diversified’s recently released study, Prescience 2015: Expert Opinions on the Future of Retirement Plans, professional retirement plan advisers will become more influential in provider searches. Among plan sponsors switching providers, 35% will use the services of a professional retirement plan adviser; however, only 10% of plan sponsors will actually change service providers annually through 2015, while more than one-third of plan sponsors will perform due diligence of their service provider and 17% will add or replace at least one investment option.    

Sixty-eight retirement plan experts from 54 organizations nationwide answered the survey and revealed several trends that will emerge over the next five years: 

  • Advisers will have established professional service standards in areas such as fiduciary practice, contracting, revenue mix and fee disclosure. 
  • Fee disclosure will make it difficult for plan sponsors with retirement plan assets exceeding $25 million to compensate an adviser in any way other than a direct fee for service—usually a set retainer. 
  • By 2015, advisers will no longer be in a position to receive compensation unless they assume ERISA Section 3(21) fiduciary responsibilities.  This differs from the current regulatory framework, which allows plan sponsors to choose from other models including broker-dealer, consultant and adviser models. 
  • The trend toward reliance on professionals will also be seen at the participant level, as many American workers would prefer to rely on a knowledgeable expert to make their retirement plan investment decisions rather than learn about investments themselves.  

The Prescience study also revealed that pressures on pricing will squeeze profitability throughout the industry. Sixty-two percent of the experts predicted that by 2015 service provider margins will fall below 11 basis points. In addition most plan sponsors will establish expense budget accounts in an effort to manage the disconnect between asset-based revenue from investment managers and the cost of services.    

Mergers and acquisitions in the benefits consulting and investment consulting arenas are expected to continue. In addition, the Prescience study panel expects at least two major service providers to spin off their retirement plan service business in an effort to meet corporate revenue targets and demands for complete open investment architecture.  

For a copy of the study report, e-mail