Improving Plan Sponsor Satisfaction

A conversation with Jordan Burgess, SVP, Head of Institutional Sales, and Derek Wallen, SVP, Head of Advisor Sold Defined Contribution Investment Only (DCIO) Sales of Fidelity Investments


PA: In your recent survey, you found plan sponsor satisfaction declined in relation to whether plans are meeting corporate goals. Why do you think that is?

Burgess: Advisers have done such a good job educating plan sponsors on the concept of plan design and plan performance that now the plan sponsors have enhanced their definition of success.

There is more awareness that not all participants are on track with their retirement goals—about 54% of plan sponsors said that participants do not save enough. So, plan sponsors are saying, “We need to do something to get our people on track. Our plan has to work harder and do more.”

Wallen: The primary reasons plan sponsors cite for having a defined contribution (DC) plan are helping employees to have a financially sound retirement and having a competitive plan that attracts and retains employees.

Helping people achieve their retirement goals isn’t easy; in fact, 58% of sponsors have participants who are delaying retirement due to lack of savings. We all know that it’s hard to get participants involved, and five years into a bull market, plan sponsors are looking across their participant base and recognizing a lot of people are still not on target.

It is a challenge to improve plan sponsor satisfaction. Advisers are educating sponsors and having productive conversations around plan design, investment lineups and plan-level goals. It takes time for those enhancements to play out and impact outcomes, and ultimately improve satisfaction.

PA: What is driving plan sponsor satisfaction with their advisers?

Wallen: We address this question from an interesting angle. We studied why plan sponsors replaced an adviser on their plan. By examining this angle, it can give you a good hint as to what they’re looking for.

We asked sponsors, “Are you satisfied with your 401(k) plan adviser?,” and 66% said yes. That has been steadily increasing since 2010, which is a positive trend. However, that leaves a universe of sponsors that weren’t satisfied and recently changed their adviser. We asked these sponsors what they were looking for when selecting a new adviser.

The No. 1 reason for the change was the need for a more knowledgeable retirement adviser. In 2011, 25% of sponsors changed for this reason, and in 2014 that jumped to 42%. This begs the question: How do you define a more knowledgeable adviser? The responses were focused on retirement-specific capabilities such as helping with fiduciary duties, improving overall plan performance and evolving plan design.

PA: Is this speaking to the role of the specialist adviser that can address investments, plan design, plan performance, etc.?

Burgess: Yes, more knowledgeable advisers align their efforts around the needs of the plan sponsor, specifically fiduciary duties, plan performance, plan design and cost reductions. It is also important for sponsors to see and periodically review the plan metrics tracked by the adviser. You can certainly make the connection to a retirement specialist adviser who has strong capabilities in these areas.

An interesting observation from the data shows that an adviser who did a good job at establishing plan metrics and improving plan performance had 100% adviser satisfaction, meaning the sponsor indicated being very satisfied or highly satisfied. That seems to be the key deliverable for plan sponsors—does the plan perform?

PA: How can advisers improve sponsor satisfaction and keep the plan?

Wallen: We’ve focused on some critical success factors already—fiduciary responsibilities, plan performance and plan design. Our survey indicates that an adviser needs to do well in those areas, but we would also recommend that advisers focus on having a formal plan to report back to the sponsors on their efforts and successes in these areas. In fact, 37% of sponsors surveyed stated their plan adviser does not effectively report back on their efforts.

Advisers are working hard, taking care of their plans, trying to grow their business, reacting to day-to-day inquiries, and what slips is creating their value statement and documenting on a regular basis activities performed on behalf of the plan. I like to ask advisers, “Are you capturing all the things you do for the plan and reporting back to the sponsor on a regular basis?”

Some advisers have plans they are at risk of losing if they don’t “report back” better. They may be doing their job, but they need to make sure that the CEO, chief financial officer (CFO) and human resources (HR) personnel have the same perception.

Burgess: I agree completely. The best advisers keep raising the bar. Surprisingly, 66% of sponsors reported they have no formal goal for participant savings. We see some of the leading advisers beginning to address this need by starting with that goal. Then, they focus on plan design and participant education, and also incorporate an ongoing investment process that is aligned with fiduciary best practices. I’d be very focused on improving plan coverage and savings rates, whether that means adding auto-enrollment, implementing automatic annual increases, improving employee education or restructuring the company match.

In getting that done, you have to shift that conversation to the retirement focus of a plan, the DB-ification of the defined contribution plan. It’s got to generate income at the end. You have to get plan sponsors to set goals, focus on plan design and make sure that you have the right investment expertise to help them achieve that. Ultimately, you need to do it at a fair and reasonable cost while ensuring that sponsors understand the value the adviser provides.

PA: We’ve talked a lot about overall plan performance, with respect to investment performance—have you seen advisers expertise around investment due diligence evolving?

Wallen: We have seen multiple shifts in the investment approach of advisers, including increased sophistication around the process. Most have moved beyond simply helping to select funds for a plan to applying a fiduciary mindset. Whether they’re naming themselves an investment fiduciary or not, they still have a process that is far more aligned with fiduciary best practices—doing the investment research and monitoring themselves, aligning with a fiduciary screener or outsourcing the investment fiduciary work. This shift has resulted in significant changes in how investment lineups are created and maintained.

Burgess: The target-date space is where we do see advisers having the most difficulty with their due diligence process. The analysis, selection and monitoring needs in this space require a different process than single fund mandates. There are multiple factors that go into assessing target-dates, and this appears to be a work in progress among many plan advisers.

We believe the process should align with a plan’s objectives, and that defined contribution plans should be designed to target an income replacement rate of 50%.

A plan adviser needs a good fiduciary process for the core lineup, combined with an advanced fiduciary process to evaluate the qualified default investment alternative (QDIA). The QDIA process should be grounded in research and designed to align with the plan’s income replacement rate.

Wallen: When 58% of plan sponsors say they want their adviser to be an investment fiduciary on the plan, that’s sending the message of the kind of partnership they want. 

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