You’re Fired! 401k Plan Sponsor Satisfaction with Advisors

Successful plan advisors are aware of these two things

401k, advisor, plan, retirementIt's never a good look.

Almost a third of 401k plan sponsors are unhappy with their advisors and ripe for the picking, and providing expertise on income replacement and savings rates are keys to winning business.

Those are some of the results from Fidelity Investments Annual Plan Sponsor Attitudes survey, which finds that the large majority of plan sponsors are highly satisfied with their plan advisors, yet a record number are actively looking to switch their plan advisors (38 percent, up from 30 percent last year).

“This is not a time for plan advisors to rest on their laurels,” Jordan Burgess, who has the unwieldy title as head of specialist field sales overseeing defined contribution investment only (DCIO) sales at Fidelity Institutional Asset Management, said in a statement. “While most plan sponsors remain satisfied with their advisors, they are raising their expectations. For some advisors, this could put their business at risk. For others, this could be an opportunity to win new clients.”

“Successful plan advisors are those who are aware of their dual mandate: to help plan participants achieve their retirement outcomes, as well as to support plan sponsors with the challenges associated with offering a defined contribution plan and other employee benefits,” the head of specialist field sales overseeing defined contribution investment only (DCIO) sales at Fidelity Institutional Asset Management added.

Reducing business costs related to having a plan is the top concern for plan sponsors, with 31 percent citing it as an area of focus.

Other important themes for plan sponsors include managing their fiduciary responsibility (23 percent), preparing employees for retirement (22 percent) and the risk of litigation and liability (18 percent).

The research also highlighted the competing priorities and challenges employers face when allocating time, budget and resources to providing benefits to their employees.

In terms of overall benefits, the plan sponsors surveyed report that health care ranks No. 1, before retirement benefits in order of importance.

Two-thirds of the plan sponsors surveyed (67 percent) agree that increased health care costs have resulted in reduced spending on other benefits, an increase from 64 percent in 2016 and 60 percent in 2015.

Plan Sponsors Active in Making Changes

The study also found that plan sponsors are making more plan design changes than ever before.

Plan design activity continues to increase and reached a new high at 92 percent, with plan advisors seen as the primary influencer of these changes. Importantly, 79 percent of plan sponsors reported that participants were satisfied with the changes.

Auto-enrollment, which can improve participation rates from an average of 50 percent to 86 percent, continues to be the most popular change, with 42 percent of the plan sponsors surveyed having introduced the feature in the past two years.

More than two-thirds of the respondents said their participants were satisfied with auto-enrollment.

Delivering Value by Sharing Retirement Expertise

As the number of plan sponsors searching for new advisors hits a record high, plan advisors can strive to differentiate themselves from the competition by educating sponsors and participants on income replacement goals and helping improve savings rates:

Income Replacement: The study found that the majority of plans have an income replacement goal. However, while Fidelity suggests that plans should aim for a 45 percent income replacement rate in retirement years, only 25 percent of sponsors identified an income replacement goal between 25 and 50 percent. This underscores a need for advisors to help set goals for retirement income based on these best practices.

Savings Rates: The study revealed that 59 percent of plan sponsors believe their default deferral rate plus company match will provide sufficient savings for participants to retire. 

Yet, eight in 10 plan sponsors said they have employees who would delay retirement due to a lack of savings, exacerbated by increasing medical costs in retirement – estimated at $275,000 per couple.

Additionally, about six in 10 said that a quarter or more of their workers leave the workforce early due to reasons beyond their control. Given these considerations, advisors could help sponsors consider the impact early or late retirement can have on their business and identify tactics to improve plan participant savings rates.

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