2015 PLANADVISER Adviser Value Survey

2015 PLANADVISER Adviser Value Survey - The Influence of Advisers on Retirement Plans

By Alison Cooke Mintzer See Archive >
2015 PLANADVISER Adviser Value Survey
Art by Adam McCauley

Value: the worth, importance or usefulness of something. In the world of retirement plan advisers, the word “value” is often followed by “proposition”—how advisers distinguish themselves to their plan sponsor clients and on what basis they expect their clients to judge them.

Creating a value proposition that distinguishes an adviser above the rest of his peers is a challenge for all advisers—not just those in the retirement plan space. A 2014 study by Pershing suggests that an effective value proposition should answer this critical client question: “Why should I choose your firm over the competition?” However, Pershing found, 60% of clients polled said that prospecting advisers from competing firms make similar or identical service-related promises to them, which makes it difficult for them to distinguish between the various advisory firms’ pitches.

Oftentimes in the retirement plan marketplace, advisers’ value propositions center around their fiduciary, plan-design and investment expertise. There is no doubt that skilled plan advisers are effective at improving retirement plan design and driving formal oversight. But, according to the 2015 PLANADVISER Adviser Value Survey, when attempting to quantify the value of an adviser to defined contribution (DC) retirement plans, the numerical values are, surprisingly, a bit challenging to discern.

In fact, the data—which segments the 2014 PLANSPONSOR Defined Contribution Survey respondents into two categories based on whether they answered yes or no to the question “Does your plan employ the services of a retirement plan adviser?”—show that the average and median balances for plans with an adviser are actually slightly lower than those without the benefit of an adviser’s touch. Even more startling, plans with an adviser have only slightly higher average participation rates, and the average deferral rates are exactly the same.

Although in many categories, the statistical differences between plans with an adviser and plans without are merely a few percentage points, plans with an adviser are more likely to run their plan in alignment with fiduciary best practices—and plan sponsors are pleased with their adviser services. However, advisers should document not only the impressive results they have had with previous clients but also those that will confirm their value to their current clients.

One thing the survey does not control for is the type—or quality—of the adviser working on the retirement plan; plan sponsors only had to confirm whether they have an adviser on their plan or not. One can assume that, especially in the smaller plans among the sample, there may be a number of non-retirement specialists. In order to try and negate the influence of non-specialists on the results, the entire data set was rerun eliminating all plans with less than $25 million in assets. However, though the numbers changed, all but a handful of data points were directionally the same when focusing on plans with more than $25 million in assets as they were when the whole data set was analyzed.

Adviser Usage

Larger plans tend to rely on advisers much more than smaller plans. The sweet spot for advisers is plans with assets above $50 million, up to $200 million, with nearly three-quarters (74.9%) of plans in this range retaining an adviser. Plans in every range leading up to this size increasingly use advisers. More than two-thirds (67.1%) of plans in the more than $25 million up to $50 million range, for example, use an adviser. However, once a plan tops $200 million in assets, the likelihood of it retaining one begins to tick downward, with 70.6% of plans in the more than $200 million to $500 million range utilizing an adviser.

By comparison, only 45.4% of plans with less than $1 million in assets and just 56.1% of plans with more than $1 million up to $5 million in assets have partnered with an adviser. The same holds true when analyzing plans by number of participants: 73.6% of plans in the 1,001-to-5,000-participant range and 72.7% of plans in the 5,001-to-10,000-participant range have an adviser, compared with 61.9% of plans in the 100-to-500-participant range and 53.6% of plans with fewer than 100 participants.