There are plenty of insights to be found in T. Rowe Price’s latest Defined Contribution Consultant Research Study, released on June 2, but four key themes emerged, which are explored below.
In partnership with Schaus Group, Baltimore-based T. Rowe Price surveyed 32 defined contribution (DC) consultants and advisory firms—that provide services to more than 33,000 plan sponsor clients and report nearly $7.2 trillion in assets under advisement—to look at marketplace trends and factors driving plan sponsor decisions.
“The retirement ecosystem is changing rapidly, and we find the consulting and advisory community evolving their businesses to address both obstacles and new opportunities,” said Michael Davis, Head of Defined Contribution plan specialists, and former Deputy Assistant Secretary of the U.S. Department of Labor.
The survey combines insights from across the DC platform at T. Rowe Price with survey data provided by the consultant and advisor community, Davis said, adding that The Schaus Group was a great partner in providing new perspectives on how consultants and advisors are working alongside their plan sponsor clients to help participants prepare for retirement and seek broader financial well-being.
Without further ado, here are the key themes revealed by the research:
1. Participants staying in 401ks post retirement
The research showed more participants are remaining in their DC plans for longer after they retire.
Potentially accelerating this trend, the research found lower cost for comparable investments versus a Rollover IRA, flexibility in drawing down assets, and investment solutions that generate income were all cited as features that may best persuade more participants to stay in plan after they retire.
Consultants also report simple systematic withdrawal capabilities as the most appealing retirement income solution despite limitations. However, multi-asset investment solutions—managed accounts with income planning features and target date investments with embedded managed payout features—follow closely behind.
2. Increased focus on CITs
With respect to target date solutions, consultants strongly support an increased focus on Collective Investment Trust(CIT)-based target dates and the pursuit of blend solutions that deliver the benefits of both active and passive investment management.
Of note, these cost containment trends received greater support than simply increasing use of passive investment management. Consultants show less support for use of managed accounts as QDIAs and mild support for adding or increasing allocations to diversifying asset classes (e.g., TIPS, private equity, and real estate).
3. Greater insight into ESG adoption
While there is broad interest in Environmental, Social, and Governance (ESG) adoption, the majority of consultants report plan sponsors are looking for further clarity on the Department of Labor (DOL) proposed guidelines before making ESG investments a part of DC plan investment options.
With respect to implementation of ESG, 40% of study respondents indicated preference for actively managed ESG investment strategies; only 10% said passive ESG investment strategies were preferable. Additionally, respondents indicated that more detailed ESG screening, reporting, and monitoring should be provided by investment providers.
4. Growing interest in financial wellness
Addressing greater financial wellness, 76% of consultants report that plan sponsors signaled greater interest in emergency savings, and 60% report greater interest in debt management.
In contrast, most respondents reported fewer than 25% of their plan sponsor clients currently offer emergency savings programs. More positively, 83% of plan consultants expect this figure to increase in the next three to five years. growing interest in financial wellness programs, especially in response to the COVID pandemic.
In response to the pandemic and “great resignation,” employers are more aware of the need for financial wellness programs. Employers’ key financial wellness objectives are to improve worker satisfaction/retention and reduce financial stress, which are also reported as the most measurable.
SEE ALSO:
• Average 401k Balances at T. Rowe Price Rose 8% in 2021
• T. Rowe Price Launches Retirement Podcast
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
