If you’re managing one or many 401k plans, it’s important to know what services plan sponsors really want and expect you to provide.
Providing desired services obviously helps to strengthen client relationships and reduces the risk of “takeover.” If you’re prospecting for new business, one of the best ways to get your foot in the door is by positioning yourself as an expert in the areas that plan sponsors deem to be most important.
Of course, one of the top concerns that plan sponsors now have relates to fiduciary liability. This was highlighted by Fidelity Investments’ Annual Plan Sponsor Attitudes survey, revealing that close to four in 10 plan sponsors are actively looking for new advisors due to concerns about fiduciary liability.
With an estimated $1.3 trillion in defined contribution assets in motion, this obviously represents a tremendous opportunity for advisors who are either already active in the 401k space or hoping to get in.
There are several ways to help plan sponsors reduce fiduciary liability while satisfying other needs. A study by OneAmerica revealed the No. 1 priority was employee education. The second highest priority was improving participation rates, which goes hand in hand with education—the more people know; the more likely they are to participate.
The Fidelity study largely confirmed the findings, and showed a lack of support for employee education requirements ranked as one of the top three reasons for plan sponsor dissatisfaction.
Participant education isn’t just a legal requirement; it can provide real tangible benefits to a business’ bottom line.
“With more knowledge of their financial future, employees are often relieved of financial stress, thus in the day-to-day, they can be more productive at their job.”
Plan sponsors are eager to reap the rewards of a happy and secure workforce. However, when asked about the reasons for not saving into the plan, 28 percent reported that a “lack of awareness or understanding” was the primary reason employees did not participate in their plans, according to Forusall.com.
Another advantage to providing employee education is that it helps plan sponsors to remain compliant with ERISA Section 404(c). 404(c) provides significant protection to plan fiduciaries against frivolous (but often costly) lawsuits in participant-directed retirement plans.
Research conducted by MassMutual illustrated that the majority of reasons sponsors changed service providers related to disappointment over a service. Employers complained about a lack of involvement with their retirement plan, passivity, not enough communication or too little interaction with employees.
And it isn’t only plan sponsors who are looking for help.
A John Hancock Financial Services study of 401k participant behavior revealed, “The majority of participants have a relatively low level of investment skill and understanding and are largely unprepared to manage their retirement portfolios successfully by themselves… only eight percent of participants knew that money market funds only contain short-term securities. And respondents rated their familiarity with money market funds as second only to company stock.”
In short, providing high-quality employee education can help strengthen relationships with current clients, acquire and retain new ones and develop relationships with plan participants.
Be sure to tailor your message to meet the needs of your audience. Consider average salary, age-range and other factors that will make your presentation more relevant to their needs. Partner with the plan sponsor; get their support and have that reflected in employee communications and in the actual meetings.
Finally, have a call to action. Encourage them to fill out the necessary paperwork and make any other relevant decisions by a specified date. Retirement planning is something that people often see as something that can always be postponed till later. While there’s always plenty of room for bad decisions in the investment arena, generally the worst decision of all is the failure to start.
Robert Morris is with Larkspur-RiXtrema.