Data & Research December 10, 2015

403(b) Plan Sponsors Could Use Help with Fiduciary Duties

Many small 403(b) plan sponsors, especially, are not performing fiduciary responsibilities, a survey finds.
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Of non-profit organizations that sponsor 403(b) retirement plans, 60% are reviewing and evaluating the investment options in their plans themselves, according to the latest 403(b) Snapshot Survey from the Plan Sponsor Council of America (PSCA) and sponsored by the Principal Financial Group.

That number falls to just 40% for sponsors of small plans (1 to 49 participants).

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However, 64% of large plans (1,000 or more participants) are receiving assistance from investment consultants, compared to 41% of plans of all sizes. This percentage drops off sharply for small plans, with just 18% engaging a consultant to help review and evaluate plan investments. Additionally, more than 30% of all respondents state their plan service provider reviews their mutual funds, and nearly 9% say no one does. That total jumps to 16% among small plans.

While the overall findings are encouraging, Hattie Greenan, PSCA’s director of research and communications, says “small not-for-profits look like they could use some support, with fewer than half evaluating funds themselves and very few using an investment consultant.”  

The survey also found a high percentage of plans not conducting requests for proposals (RFPs) to help ensure their plan fees are reasonable. Forty-two percent of plans do not conduct periodic RFPs. Among the smallest plans, the percentage increases to 64%.

“This data point, along with many others in the survey, illustrates how small plans are underserved by financial advisers and could benefit greatly from their expertise,” says Aaron Friedman, national tax-exempt practice leader at The Principal.

NEXT: Fund benchmarking, investment education and advice

A majority of plans (86%) indicate they benchmark their funds. The most popular elements used in benchmarking include performance (84%), fees (69%) and risk (64%).

More than 40% of plans have not replaced any funds in the last two years, including two-thirds of small organizations.

According to the survey, plan sponsors rely heavily on their providers to deliver investment information to participants. More than half of sponsors indicate their plan provider helps participants make investment decisions, and 30% use an investment consultant to do so.

Fifty-five percent of 403(b) plan sponsors make a financial planner available to participants, and 49% make advice available.

PSCA’s 2015 403(b) Snapshot Survey reflects responses from 426 not-for-profit organizations that currently sponsor a 403(b) plan. Seventeen percent of respondents sponsor 403(b) plans that are not subject to Employee Retirement Income Security Act (ERISA) fiduciary duties.

More details of the findings are at http://www.psca.org/403b_snapshot_2015.
Data & Research December 10, 2015

Investors Brace for a Bumpy Ride

Overall investor optimism is stable, but the retiree outlook is less rosy.
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Investors believe more market volatility is in store, with a majority saying they expect the market to be volatile in the New Year, according to the latest Wells Fargo Investor and Retirement Optimism Index survey.

Three-quarters of those surveyed say the stock market will be rocky, including 16% who predict it will be highly volatile. Of those who anticipate market volatility, six in 10 (59%) are taking action to prepare by: consulting with a financial adviser (44%), purchasing stocks to take advantage of lower prices (30%) and selling stocks to protect from further losses (15%).

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The Investor and Retirement Optimism Index held its ground in the fourth quarter, at +59, similar to +58 in the third quarter. Optimism has been slightly weaker in the past two quarters compared to the first half of the year when the index hovered near +70, but it is still higher than the +48 recorded a year ago. Despite overall stability in the index this quarter, retiree optimism dropped 23 points, to +47, driven by a loss of confidence in retirees attaining their five-year investment goals, and reduced confidence in economic growth and inflation. At the same time, non-retiree optimism rose 10 points, to +63, because of improved confidence around employment. This marks the first time in more than a year that non-retired investors are significantly more optimistic about the investment climate than retirees.

Market bumps make it even more important that investors have a strong financial plan to keep them on track with goals and risk tolerance, says Zar Toolan, director of advice quality for Wells Fargo Advisers.

Financial advice is particularly important, according to the survey, and investors continue to rely on different ways to get it. Nearly half (45%) use a dedicated personal financial adviser. About a third (39%) use an advisory that gives access to a call center so they can speak with a live adviser. Another third (29%) rely on a friend or family member, and 22% turn to the Internet for an online financial planning or investing website. During the market volatility in late August, a third of stock investors (33%) consulted with a financial adviser. 

NEXT: The need for advice in a volatile market

There are a lot of different ways to get financial advice today, but no matter how it’s delivered, its true value lies in making sure investors have a financial plan, regularly monitored by a financial adviser, to help meet investment goals. A plan that is in line with an investor’s goals and risk tolerance makes that investor better equipped to weather the volatility, Toolan says.

During the recent volatility, investors who use a dedicated financial adviser were likelier to:

  • Say they paid closer attention than usual to the market  (57% versus 46%);
  • Sell stocks (23% versus 10%);
  • Buy stocks (40% versus 18%); and
  • Generally follow all or most of the advice from the adviser (78%).

When asked how much their portfolio matches their risk tolerance, the majority of investors (73%) say their investments have the right amount of risk for them. Of the rest, four times as many feel they could handle more risk (20%) than say they have too much (5%).

“Market volatility can be tough for investors. While most told us their investments match their risk, financial advisers often find out when they talk to clients that the match hasn’t held up well when the market fluctuated,” Toolan says. This disconnect underscores the importance of client conversations, especially during volatile markets, in helping investors stay on track to achieve their long-term financial goals.

“During times of uncertainty, investors’ attitudes and goals can change as quickly as their portfolios,” Toolan says. “This downward shift in retiree optimism highlights their concerns about reaching their near-term financial goals.”

The Wells Fargo/Gallup Investor and Retirement Optimism Index was conducted by phone from October 30 to November 8, surveying 1,018 investors randomly selected from across the country. The American investor is an adult in a household with total savings and investments of at least $10,000—about two in five American households. Respondents were non-retired (73%) and retirees (27%). Of total respondents, 42% reported annual income of less than $90,000 and 58% of $90,000 or more.

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