401(k) advisors are more bullish, and plan sponsors more bearish, about plan participants’ retirement readiness than two years ago.
Plan sponsors are also more aware of what constitutes retirement readiness, and are therefore requesting a broader array of topics be covered in financial wellness offerings, according to new research from Voya Investment Management.
The asset management arm of Voya Financial released the second edition of its “Survey of the Retirement Landscape: Challenges and Opportunities for DC-Focused Advisors,” which found sponsors are looking for expert guidance on the topics of alternative plan design, cybersecurity, financial wellness and special needs caregivers, among others.
It found sponsors are behind when using risk-assessment tools to gauge the suitability of investments, and they will need advisors to fill this gap, and they don’t always recognize the services advisors provide, potentially leading to confusion about what sponsors get for the fees they pay.
Here are the findings in four other key areas:
Deployment of target date funds expands
Use of target date funds (TDFs) rose significantly among larger plans.
Across plan sizes, nearly six in ten sponsors include TDFs in their plans; roughly one-third of those that do not include them would prefer to use TDFs in the future—up from less than one-fourth versus the previous study.
Current service offerings
Sponsors and advisors generally agree on the kinds of plan support offered, though sponsors seem less likely to recognize the services provided by advisors. This misperception is likely to confuse sponsors about what they are paying their advisor to do, and points to a need for advisors to more effectively communicate their value-add.
Large plan sponsors are more likely to recognize their advisors provide support for investment selection and plan fiduciary responsibilities, but less likely to recognize support for financial wellness. By contrast, small- and mid-size plan sponsors are more likely to say their advisors support financial wellness but perceive less help with selecting plan service providers.
Consistent sponsor preferences
Advisors generally believe plan sponsors need help understanding fiduciary responsibilities, are overwhelmed by compliance burdens, demand more services and expertise from advisors and have a growing need for support.
Sponsors are less likely than advisors to say they need support with these issues, though there have been minor changes in their views since the initial study.
For example, in the initial study, 91% of sponsors said they prefer to work with an advisor who specializes in retirement plans; in 2018, that figure increased to 94%. Over the same period, demand for “more service/expertise from advisor” rose from 55% to 63%.
Evolving sponsor and advisor priorities
Without being prompted, sponsors and advisors offered different rankings of the most significant challenges they face. Sponsor priorities seem not to have shifted much. For example, increasing plan participation was a top concern and remains so in the most recent survey.
By contrast, plan details—short for “details related to the plan such as options, fees, match, investments, performance”—may have become more important.
Interestingly, cybersecurity, an emerging issue that scored relatively low in other areas of the survey, made it onto the unprompted challenges list as well.
Comparing advisor and sponsor concerns reveals several discrepancies that may be important to advisors in tuning their mix of services to sponsors.
While Advisors’ ranked fiduciary/compliance issues as their top priority in both surveys, they were ranked fourth by sponsors in 2018, suggesting there may be fewer opportunities to discuss this service than advisors think.
Conversely, market volatility gets ranked fifth by sponsors but only tenth by advisors; this suggests there may be greater opportunity here to offer services than advisors may perceive. Sponsors and advisors agree on the importance of educating plan participants.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
