2016
PLANADVISER Adviser Value Survey

Shedding Light

How advisers can make a difference for plans

Day in and day out, retirement plan advisers are single-mindedly driven to help sponsors with their fiduciary responsibilities and to prepare participants for a thriving retirement. While advisers’ objectives and actions may be noble, it is the end results that matter. This may include expanding retirement benefit offerings to meet the needs of all employees, finding the best-performing and lowest-cost investments, monitoring fund and other service providers, educating participants about the value of their retirement benefits and relying on innovative plan design to boost deferrals, balances and retirement outcome trajectories.

How your plan sponsors perceive the solutions you bring to them is the focus of the 2016 PLANADVISER Adviser Value Survey. Based on the responses to more than 60 questions from 5,109 plan sponsors, the survey compares plan demographics from plans that use an adviser to those that do not and looks for specific measureable differences. In short, it tries to answer the question: in what ways do retirement plan advisers make plans better?

This year, to get a better measure of the role of retirement plan specialist advisers, we also examined how results varied when a plan had an adviser serving either as a 3(38) or 3(21) fiduciary and found marked improvements—particularly with respect to plan design, oversight and evaluation.

From a 10,000-foot view, sponsors working with an adviser are quite satisfied with the services being provided. Asked whether they were likely to recommend their adviser on a scale of 1 to 10, with 10 representing the most likely, 79.3% of sponsors gave their adviser a score of 8, 9 or 10 (47.4% of sponsors gave a score of 10, 19.3% a 9 and 12.6% an 8).

Encouraging Plan Design Best Practices
The world of improving plan design through automatic plan design arrangements is very much in favor by advisers.

Nearly half (46.3%) of plans with an adviser have auto enrollment, compared to 39.6% of plans without an adviser, and auto enrollment is more likely to be in place with a fiduciary adviser. This feature, which can drive significantly better participation rates, jumps to 52% of plans with a 3(38) fiduciary adviser and 51% of plans with a 3(21) adviser.

More than one-third, 35.4%, of plans with an adviser have annual automatic deferral increases, compared to 31.6% of plans without an adviser. If the adviser is a 3(38), this jumps to 43%, and if they are a 3(21), this rises to 37%.

For the most part, employers generally seem to be willing to make a contribution to the plan or not, although advisers do seem to be able to convince some employers of adding some investment into the plan in order to encourage employees to defer more or perhaps to get an employer tax incentive. Nearly all, 89.6%, of plans with an adviser have an employer match or contribution, compared to 83.9% of plans without an adviser. Plans with an adviser are also more likely to have an employer profit sharing or nonelective contribution (51.0% versus 48.4%). If the adviser is a 3(38) fiduciary, this jumps to 53.2%, and if they are a 3(21), to 57.5%. However, when it comes to the match formula, there isn’t a significant amount of difference for plans with an adviser and without.

Plans with an adviser are more likely to distribute the match or contribution twice a month or biweekly than plans without an adviser (62.7% versus 59.2%). For plans with a 3(38) fiduciary, this rises to 68.3%, but for plans with a 3(21) fiduciary, this dips to 59.0%.  A surprising number of plans distribute their match or contribution once a year, with 13.7% of plans with an adviser, and 15.8% of plans without one, doing so. The percentage of plans with a 3(38) or 3(21) fiduciary distributing their match once a year isn’t markedly different than advisers not acting as a fiduciary, however, with 13.0% of 3(38) advisers and 14.0% of 3(21) advisers taking this approach.

Advisers also are making somewhat of a difference when it comes to vesting and eligibility. The match or contribution in more than one-third, 34.6%, of plans with an adviser is immediately vested at the time of enrollment, compared to 34.2% of plans without an adviser. Immediate vesting percentages among 3(38) and 3(21) advisers, hold steady, among 35.9% and 34.2% of plans, respectively.

Counterintuitive?
Despite the retirement plan adviser focus on improving plans, there are some plan design results that might be surprising. Although best practices have been to limit loans and other causes of plan “leakage,” loan and hardship withdrawal features are more common among plans overseen by an adviser; 83.1% of plans with an adviser permit loans, compared to 76.9% of plans without an adviser, and 92.4% of plans with an adviser allow hardship withdrawals, compared to 86.7% of plans without. What is unknown is whether those options are more structured in plans with an adviser—are plans restricting the number of loans or reasons for hardships or the fund sources available?

Investment Lineups
When it comes to the types of investments offered in defined contribution plans, target-date funds (TDFs) are more prevalent in plans with an adviser than those without one (78.7% versus 73.7%). And while that dips to 76.6% of plans with a 3(38) fiduciary, it jumps to 82.5% of plans with a 3(21). Plans with an adviser are next most likely to offer balanced funds (71.9% versus 73.3%). However, these percentages dip slightly among plans with a 3(38) or a 3(21) adviser (70.9% and 70.5%, respectively).

Plans with an adviser are next more likely to have a stable value fund (63.7% versus 55.6%). While this percentage dips slightly to 63.0% of plans with a 3(38), it rises to 72.6% of plans with a 3(21).

The fourth most common type of investment offered by defined contribution plans is money market funds, used by 60.4% of plans with an adviser and 64.8% of plans without one. This rises to 62.7% of plans with a 3(38) fiduciary adviser but drops to 55.6% of plans with a 3(21).

Again in the investment category is where industry best practices are more common. For example, more than one third, 36.0%, of plans with an adviser have an investment committee comprised of both internal and external people, whereas 50.9% of plans without an adviser have a committee comprised of only of employees. A written investment policy statement (IPS) is also far more common for plans with an adviser than without (72.7% versus 52.3%), and when the adviser is acting as a 3(38) fiduciary, that jumps to 83% and, for a 3(21), to 88%.

Additionally, the investments are reviewed more consistently when they are without adviser guidance. When it comes to how frequently investment options are reviewed, 43.4% of plans with an adviser review investment options every quarter, compared to only 24.0% of plans without ad adviser. This jumps significantly to 53.6% of plans with a 3(38) fiduciary and 54.0% of plans with a 3(21).

Similarly, plans with an adviser are also more proactive about reviewing plan costs every year (77.3% versus 73.0%). This soars to 81.0% of plans with a 3(38) fiduciary but dips slightly to 75.8% of plans with a 3(21).

Specialist fiduciary advisers have an influence in many areas of plan design and investment selection, perhaps as a recognition of their increased liability. Unfortunately in general, whether specialists or not, advisers are not making an appreciable difference when it comes to participation rates (average participation rates in the high seventy percent range) or deferral rates (6.4% at plans using an adviser versus 6.5% at plans without an adviser) or even account balances ($85,380 versus $85,680).

The one bright spot for 3(21) and 3(38) fiduciary advisers perhaps is that when they are involved in the plan, average account balances are higher–plans with a 3(38) fiduciary have an average account balance of $91,644 and the average is $93,832 at plans using a 3(21) adviser, compared to $85,680 at plans without an adviser. While not a significant extension of the longevity of a retiree’s savings, it is notable and worth showcasing.

Art by Christian Northeast