Art by Kevin Hong
Why do plan
sponsors hire retirement plan advisers? Is it to help them improve their plans?
To improve plan governance? To bring expertise the plan sponsor does not have?
Arguably, often for more than one of those reasons, and likely for others, as
well. In any event, it is likely a plan sponsor hiring an adviser will
anticipate some sort of measurable outcome that the adviser will provide—a
return on investment (ROI) of sorts. In that case, an expected ROI might be
that adviser-led retirement plans have appreciably better metrics and results
than other plans.
advisers, there is good news: According to the 2017 PLANADVISER Adviser Value
Survey, plans overseen by advisers are often better off. This is particularly
evident when it comes to plan design and oversight—such as the use of automatic
features, an investment policy statement (IPS) and quarterly investment
reviews. The adviser can point out his years of experience using successful
elements of retirement plans and, thereby, reassure his sponsor clients to step
up to the plate and make the right, and sometimes brave, decisions for their
when it comes to average balances, plans without an adviser actually have
higher balances, which would seem to indicate that, in some areas, advisers
have much more work to do to show a prospective plan sponsor client the ROI of
PLANADVISER Adviser Value Survey is based on the responses of 4,218 sponsors
who participated in the 2016 PLANSPONSOR Defined Contribution (DC) Survey.
percent of plans with an adviser have a company match, compared with 73%
without an adviser. The fact that adviser-led plans will more likely have a
match comes as no surprise to Rick Unser, ERISA [Employee Retirement Income
Security Act] risk management consultant at Lockton Financial Advisors LLC in
Los Angeles. “Where an adviser can have an impact is to help his clients
determine if their current matching strategy helps attract or retain employees
and if it is structured in a way that will encourage employee contribution levels
necessary for them to make a timely transition into retirement,” Unser says.
Shumosic, owner of MidAtlantic Retirement Planning Specialists in Wilmington,
Delaware, agrees: “When a company relies on a direct-sold or bundled retirement
package, it is simply not going to get anywhere near the same level of
consultation that it will from an adviser, who can sit with the plan sponsor
and its accountant and come up with the best possible plan design, including
matching formulas or profit-sharing contributions.”
an adviser are more likely to deposit participants’ contributions and matches
every pay period (73% vs. 70%). This way, Shumosic says, “it’s easier to
budget, and employees like seeing [the contributions] go in every pay period.
What’s not to like?”
Glasgow, senior vice president at Avondale Partners in Nashville, Tennessee,
says making contributions every pay period is one of the great benefits of
retirement plans. “The sooner a contribution is made into the plan, the better,
as it allows the investments more time to compound.” He says participants also
appreciate seeing the employer match regularly, and this “can help with
of an adviser makes no real difference in terms of whether employee contributions
or company matches immediately vest upon enrollment—a benefit at 35% of plans
with an adviser and at 37% without. These low percentages make sense, advisers
say. “In most cases, it’s because employers want to make sure their employees
are going to stay,” Shumosic says.
echoes these thoughts, noting that some industries have high turnover, and “if
a participant leaves, then the forfeited match dollars are available to offset
other employer contributions or plan expenses. Unless there is significant
pressure, from an employee attraction and retention perspective due to
competitive pressures, there would be no reason for an employer to immediately
vest contributions made on behalf of a new and untested employee.”
showed a significant difference between plans with and without an adviser when
it came to the use of automatic features. “[Adopting these] is paramount,” says
Dan Peluse, director of retirement plan services at Wintrust Wealth Management
in Chicago. “In almost all cases, the implementation of automatic plan features
is the most impactful decision a plan sponsor can make.”
percent of plans with an adviser automatically enroll participants, compared
with 37% of plans without an adviser, and 45% of plans with an adviser
automatically escalate participants’ deferrals every year, compared with 30% of
plans without an adviser.
should be prepared to stress to plan sponsors the critical importance of these
“auto” features—and at meaningful percentages, says Unser. “Most employers I
speak to understand the concept and know it is likely the right thing to do but
need to be reassured with the facts, employee reactions, and examples of how
others like them have taken the leap to add automatic enrollment and escalation
and that it will not blow up in their face,” he says.
the survey, another key benefit that advisers bring to retirement plans is the
use of a written IPS: 76% of plans with an adviser have such a document,
compared with 56% of plans without an adviser. “An IPS that is written properly
ties to their actual investment monitoring process and, if followed, is vitally
important to demonstrate plan fiduciaries are following a process to evaluate
and monitor plan investments,” Unser says.
says the IPS is a good way for advisers to “keep score” on the retirement plans
they serve, likening it to a “report card.”
counterintuitively, as much of the industry expresses concern about plan
leakage, plans with an adviser are also more likely to have a loan provision
(83% vs. 76%) or a hardship withdrawal provision (88% vs. 83%).
thinks these numbers should be reversed. He is opposed to granting loans or
hardship withdrawals and believes advisers should discourage sponsors from
allowing them. “As advisers, we want our clients to eliminate as many sources
of leakage as possible. We have had success in convincing clients that the
existence of loan provisions has little impact on participation, deferral rates
and other success metrics—and in having those clients reduce or even eliminate
the loan provisions of a plan,” Glasgow says.
showed that mutual funds are the overwhelming favorite investment vehicle of
retirement plans, being used at 92% of plans with an adviser and 90% of plans
without. However, separate accounts are slightly more prevalent at plans with
an adviser (21% vs. 20%), as are collective investment trusts (CITs)—17% vs.
expect more advisers and plan sponsors will evaluate the use of separate
accounts and CITs, but I don’t foresee either posing a significant threat to
mutual funds anytime soon, due to the continued compression of mutual fund fees
and the migration to zero revenue-sharing options,” Peluse says.
agree that another survey finding is critical: 44% of plans with an adviser
conduct quarterly investment reviews compared with 23% of plans without an
adviser. “This is an extremely important function of a plan adviser and a
critical task of all plan fiduciaries,” Peluse says. “The investment review
process should illustrate the due diligence the plan committee and the adviser
have adopted to review the current plan investment options and available
74% of plans with an adviser conduct an annual review of their administrative
fees, compared with 70% of plans without an adviser. Glasgow says the
percentage of such adviser-guided plans could, and should, go higher. “Advisers
should be monitoring fees continuously, as facts and circumstances in this
industry are changing dynamically and rapidly,” he says. “A formal review of
plan expenses should happen at least annually, and advisers should be leading
that effort, as they are in an important position to be able to find and
understand those expenses in ways that sponsors frequently don’t.”