Data & Research November 15, 2022

53% of Savers Who Rely on Workplace Plans Don’t Work with Advisers

U.S. consumers have a growing appetite for professional financial advice, but more than half of people relying on their employer-sponsored plan don’t go beyond self-service options, according to Hearts & Wallets.  

Reported by



More than half of U.S. savers who rely on their workplace retirement plan as their primary financial resource do not sign up for more than the most basic self-service assistance, according to new research from Hearts & Wallets provided to PLANADVISER.

Among plan participants who say they rely on their workplace plan for financial resources, 34% say they get no financial service or advice, and 19% only use self-service advice focused on one topic, according to Hearts & Wallets. The other less than half of participants in the group get more professional assistance covering multiple topics, the researcher said.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

The gap in financial advice provides opportunity for retirement plan advisers and sponsors to give better guidance about the role of professionals in helping to manage investments, taxes and retirement planning, says Hearts & Wallets CEO and founder Laura Varas. Participants might see the value in advice if given choices such as how to manage inflation, or how to set up an in-plan guaranteed income solution, she says.

“Plan participants are getting less robust advice offerings,” Vara says. “It would be helpful to participants if they had more explicit communication about what they can get through their plan for more personalized financial advice.”

Recent research shows that American workers are stressed about having enough to save for retirement amid rising inflation, but that they are keeping up with their workplace retirement plan deferrals. A separate survey of more than 2,000 working adults released Monday by the National Association of Personal Finance Advisors said 70% of employees believe they would perform better at their jobs if their employer offered more financial wellness benefits.

The Hearts & Wallets research showed that, despite financial advice services likely adding costs for participants, more savers seem willing to absorb the additional fees than in the past.

The survey, which included 5,993 U.S. households and was conducted from August 15 to September 15, found that more than one in four households (27%) agree they “see value in paying for professional financial advice, whether or not I use a financial adviser today,” nine percentage points higher than in 2012. Meanwhile, nearly a quarter (23%) of households agree “my financial adviser is a partner to me” in 2022, up from 15% in 2012.

“We find growing appreciation for financial advice overall, as well as people feeling like their financial adviser is a partner,” Varas says. “When a consumer understands the financial adviser role and knows what to expect, they are more likely to agree that the person is a partner.”

Varas notes that new entrants into the financial advice space—such as blooom, Savvy and Betterment—do a better job of marketing their services, with clear guidance on the benefits of the service and costs.

“When young people talk about their [retirement] plan, they’re talking about it more like a subscription,” she says. “It should be way easier to help people with these really important decisions by telling them how much more it will cost and what they’ll get. You don’t have to wonder with Netflix or HBO if you’re getting a premium subscription or basic.”

The increased interest in professional advice comes at a time when the survey group has concerns about inflation (46%), the U.S. economy overall (41%) and social security’s future (36%). Among those with concerns about inflation, more than a third have 90% of their investable assets in cash, providing yet another opportunity for advisers, according to Rye, New York-based Hearts & Wallets.

“The financial services industry can support consumers in their struggle with inflation, especially when it comes to education about why high cash holdings can be counterproductive,” Varas says. “Additionally, there are myriad solutions to the concern about making assets last throughout retirement.”

The survey also found a trend toward retirement savers being more comfortable with leaving their money in a former employer’s plan. That data showed an 8% increase since 2012, with 22% saying they are fine leaving their money with a former employer’s plan.

In Practice November 14, 2022

Recordkeeper Consolidation Leads to Drop in Proprietary Product Share, Opening Door for Asset Managers

The consolidation of DC plan providers may not be as much of a threat to asset managers as some have thought, with recordkeeper integration needs and legal risk meaning less focus on proprietary investment options, according to new research from ISS Market Intelligence.

 

Reported by



Recordkeeper growth through consolidation has come with a decrease in the share of proprietary investment options the giants of the industry have to offer plan sponsors, according to new research from ISS Market Intelligence.

Recordkeepers with their own asset management divisions have been buying up retirement divisions at a rapid pace over the past decade, significantly boosting the participant pool that they can offer to default into their own investment options. The drop in retirement recordkeepers from about 400 to just 150 over the past decade has led to opinions that consolidation would also reduce third-party investment options available to DC plans.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

But researchers from ISS Market Intelligence see a silver lining in the trend, with the share of recordkeeper-owned investment options dropping as the firms focus on integrating plan sponsors and participants to take advantage of their new scale.

“The drop in proprietary share shows that while there is consolidation in certain areas of the market, it does not translate to all other parts of retirement,” said Alan Hess, ISS associate vice president for U.S. fund research, in an emailed response. “Firms that offer both recordkeeping and asset management services may face limits on translating dominance in one market to another, which means that third-party managers can still hope to find space on consolidated platforms.”

For the 14 recordkeepers that also have asset management divisions, the median proprietary share has fallen by nearly half over the last decade, from a high of 45.7% in 2009 to 24.8% in 2020, according to ISS Market Intelligence. That compares to total plan assets under administration jumping from $1.5 trillion to $4.7 trillion.

ISS Market Intelligence is owned by Rockville, Maryland-based Institutional Shareholder Services Inc., the same parent company that owns PLANADVISER.



Recent consolidators with asset management arms include Empower Retirement, Principal Financial Group, Transamerica Retirement Solutions LLC and John Hancock.

The acquisitions made by these firms increased total plan assets but did not add asset management divisions, according to the report. So while some of the investment managers may still be engaged with the retirement plans, they are not owned by the acquirer.

“These acquisitions help increase total plan assets, but do not include the rest of the firm’s asset management business and cause prop assets to represent a smaller portion of the new total,” ISS said in the report. “Recordkeepers with proprietary product may be able to influence plan design at the initial stages but have less room to promote such funds when taking over existing business.

Asset managers who may initially see consolidation as a threat can take the opportunity to approach retirement plan advisers, recordkeepers or third-party administrators, says researcher Hess.

“Investment option turnover might be greater among retirement plans than some asset managers would prefer, but it is a more stable market compared to the retail space, which is reflected both in the steadiness of contributions and the careful decisions that need to go into crafting and revamping investment offerings,” Hess said.

Fiduciary Risk

The relationship, however, has been scrutinized by regulators and faced litigation on funds managed by the platform owner and how well they do or do not match to other options, the report says.

On November 9, MassMutual faced just such a lawsuit by a participant accusing the Springfield, Massachusetts-based company of putting in the plan its own offerings that were not performing as well as other options. The complaint alleges part of the strategy went toward making them more attractive for an acquisition by Empower Retirement in 2020.

Empower, now the owner of MassMutual’s retirement business, did not immediately respond to comment on the lawsuit.

Overall, the gain in scale and market share has been the key motivator for recordkeepers, Hess said. Empower, which has accounted for much of the acquisition activity in recent years, has a very low share of proprietary products on its platform.

Even so, keeping participants in-house for asset management products would serve as an additional source of revenue for consolidators and keep them from flowing out to competitors, Hess said.

The firms that have the largest proprietary share of offerings are also some of the biggest firms in the general asset manager industry, according to the report. These firms include The Vanguard Group, Inc., with a leading position in mutual funds and exchange-traded funds, as well as Capital Group, which owns American Funds.

Some of the largest acquisitions in recent years have included Transamerica parent Aegon purchasing Mercer’s recordkeeper unit in 2015, Principal Financial Group acquiring Wells Fargo’s retirement business in 2019 and Empower Retirement acquiring Prudential Retirement in 2022.

«