Client Service January 12, 2017

Study Finds DC Plan Advisers and Sponsors Have Different Focus

Voya contends its study suggests an opportunity for advisers to add value by educating sponsors about the factors that contribute to retirement readiness.
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There are several disconnects between the perceptions of defined contribution (DC) retirement plan sponsors and advisers, according to surveys by Voya Investment Management.

The study report, “Sponsor Perceptions of Retirement Plan Services: Challenges and Opportunities for Advisors,” includes findings from surveys of plan sponsors and advisers that were fielded in March and April of 2016. The surveys suggest that helping plan participants become retirement ready is an important concern for sponsors, but they place less emphasis than advisers on the means to achieve it, e.g., participant education, enrollment, communications and increasing savings rates. Plan sponsors are concerned with operating their plans and avoiding potential liabilities; the study shows if the plan is running smoothly and employees are contributing, sponsors tend to believe participants are preparing effectively for retirement.

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By contrast, advisers look at potential outcomes and can see participants generally are not saving enough or investing wisely enough to provide for their retirement income needs. Nearly half of advisers say participants are “poorly prepared” for retirement, whereas only one in six plan sponsors agree. Seven in 10 sponsors say participants are “somewhat prepared” to retire, and four in 10 advisers concur. Yet only one in six sponsors and one in 10 advisers say participants are “well prepared” for retirement.

In other findings, plan sponsors cited the challenges of meeting compliance requirements as a major concern over the next two years. Other significant challenges respondents cited included educating plan participants, increasing participant savings and managing plan expenses.

“Our research found plan sponsors were most concerned with plan fees, the retirement readiness of participants and investment performance,” says Michael De Feo, head of Retirement and Investment Only at Voya Investment Management. “While advisers agreed that plan fees were a top priority, they also thought sponsors were more concerned with managing plan complexity and less concerned about participants’ retirement readiness.”

NEXT: Investments, managing fees and helping participants

According to the study, plan sponsors and advisers generally agree that offering a tiered investment menu—target-date funds, core funds and a brokerage/mutual fund window—for different types of plan participants can result in better investment outcomes. Investment performance is the leading factor driving change of plan investment options, followed by the availability of lower-cost options. Sponsors and advisers closely agree that most participants are best served by investing in target-date funds rather than selecting individual funds or plan choices. Sponsors want more frequent review than the annual meetings that advisers typically offer: nearly three-fourths want at least semiannual reviews, and half want quarterly reviews.

The key regulatory concern for sponsors is ensuring reasonable plan fees and expenses, followed by complying with Department of Labor (DOL) fiduciary standards. Advisers believe they are effective in controlling plan costs. They also believe their fee disclosures are easy to understand, but sponsors do not agree with this perception. Sponsors tend to focus on absolute cost, which suggests they are missing the point of DOL guidance about seeking reasonable value for the fees they pay, Voya says.

Helping plan participants become retirement ready is an important concern for sponsors, but they place less emphasis on participant education, enrollment, communications and savings rates than advisers do. This represents an opportunity for advisers to add value by educating sponsors about the factors that contribute to retirement readiness, according to Voya.

"Based on the data, sponsors don't recognize all of the services that advisers provide," says De Feo. "Since we found that 95% of sponsors want to work with a retirement specialist, it is crucial that advisers highlight their skills and the value that they bring in this regard. It is also critical that advisers push for greater emphasis on participant education and communication between plan sponsors and participants to enhance the potential for participants to meet their savings goals."

Data & Research January 12, 2017

Investors of All Ages Use Robo-Advisers More

Also, the Spectrem survey reports it’s the first-time investors regularly utilizing the technology instead of employing human advisers. 
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Less than a decade after the introduction of robo-advisers, a new study by Spectrem reveals workers are utilizing the technological advice more than human advisers.

The report, titled Wealthy Investors and Their Perceptions of Robo-Advisors, surveyed investors with a net worth larger than $100,000, and found that almost a third believe robo-advisers are more efficient than human advisers in choosing stocks for risk  tolerance (30%) and picking investments for retirement plans (28%).

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The survey reported that 56% of investors who currently employ a robo-adviser never consulted with advisers before using the service. Sixty-four percent of those users were over the age of 61, meaning that older first-time investors would rather utilize robo-advisers. The report notes that while younger investors, such as Millennials, may be most likely to turn to the service, the average wealthy investor using robo-advisers is 48 years old, and more than 20% of those surveyed are over the age of 61. Additionally, 16% of those older users employ robo-advisers as their primary source in advice-seeking.

However, not everyone is a fan of the technology-based advisory solution. The study reports that among non-robo-users, 49% say they do not utilize a robo-adviser because of a lack of humanized attention.

While the report highlights robo-adviser usage, it also indicates how human advisers are accepting the increased utilization. Almost half (46%) of wealthy investors suggested their traditional adviser recommended using the technology offered by the firm for a share of their assets, in order to lessen fees and simplify the investment process.

“Our research consistently shows that robo-advisors are becoming increasingly accepted by wealthy investors,” said George Walper, president at Spectrem. “To remain competitive, traditional advisors should lead with their unique expertise in establishing a financial plan and emphasize their ability to evaluate and react to world events.”

More information on the findings can be found here. 

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