2008
DC Survey A Matter of Perspective

What advisers see when looking for a DC recordkeeper partner

When it comes to picking a defined contribution (DC) provider, a consistent theme emerges. Those that “work as a partner with us not against us," or let the adviser “work hand-in-hand with them" are best, according to respondents in PLANADVISER’s third annual survey of advisers about DC plan recordkeepers. However, what constitutes that cooperative, facilitating spirit can be as unique as the individual advisory firm—and even for providers that offer significant support services, our survey once again finds that retirement plan advisers can be tough customers.

In fact, despite the fact that most advisers acknowledge receiving multiple support services from these recordkeepers, they, in general, do not seem to hold most vendors in high regard. Consequently, those providers who do receive high ratings from advisers truly have something to crow about.

Value Added

Asked what kinds of support services or tools they rely on from these DC plan providers, the most common response is “training specific to DC plans," cited by 63.5% of advisers, including specific mentions of instances where the vendors had pertinent ERISA information and regulatory updates—materials that, in the words of one respondent, allow advisers to respond “to the changing marketplace and demands from plan sponsors."

Plan benchmarking is cited by 59.5% of advisers, a category that encompassed such elements as helping the adviser determine “the best way for employers to accomplish what they want to offer," and “providing plan-by-plan detailed demographic data that can be used in designing employee meetings." Other common support mentions are marketing collateral (54.7%) and conferences (52.7%).

Advisers also appreciate provider support in helping them find new relationships; DC plan lead generation is cited as a support element by 50% of advisers. Some vendors also assisted with adviser prospecting efforts, including offering access to prospecting lists. One adviser respondent notes that some of their recordkeeping partners have “referred me to their existing clients that have inquired about bringing on an experienced retirement adviser. I’ve taken over for many of these groups via a [broker of record] letter, and helped to fix the existing program."

When it comes to helping advisers with selecting or monitoring a recordkeeping provider, most advisers perform various services related to benchmarking provider fees as part of their retainer or annual service package. Ninety-three percent of advisers offer some sort of provider fee analysis, and nearly all (96.9%) of them do so as part of their retainer or annual service package. Of the 90.6% of advisers who perform vendor or fee reviews, most (92.8%) include it in their services.

However, the vendor-related service least likely to be included in the retainer or annual service package is an RFP or benchmarking process of the DC plan recordkeeper. Offered by 84.8% of advisers, this shows that advisers prefer to do their own recordkeeper search, instead of letting the plan sponsors go to another consultant or look to vendors for a basic RFP form. While the vast majority, 87%, include it in their annual service package, that still means that 13% charge their clients extra for help with this process. However, that might include advisers who act as consultants and offer RFP or benchmarking help as a standalone service.

Provider Perception

Advisers work with a handful of providers, unlike their clients, who generally have experience with only one (or perhaps more than one if the client has gone through a conversion over the plan sponsor’s tenure). However, while advisers do work with multiple providers, they also have their favorites, tending to gravitate toward a select group that is manageable, dependable, and whose practices integrate well with their own approach. That selectivity may account for the fact that more than half of the 90 providers, including many regional TPAs, listed as options in our survey received too many “no opinion" or “have never heard of" ratings to be listed in the pages here.

However, where there were opinions, those judgments tended to be relatively harsh. Of the 43 providers who were eligible to be listed in this section, not a single provider received a “very favorable’ rating from more than half the adviser respondents to this year’s survey (the highest “very favorable" rating was the 43.6% given to Newport Group). In fact, only five providers (Diversified Investment Advisors, Fidelity Investments, John Hancock Retirement Plan Services, New York Life Retirement Plan Services, and Newport Group) received a very favorable rating of between 40% and 45%.

Perhaps more significantly, 11 providers received a “not favorable" rating from more than 50% of advisers, and only two—T. Rowe Price and American Funds—received a “not favorable" rating from less than 10%, showing how well they were rated in the “somewhat favorable" category, since they did not appear in the list of the top five providers given a “very favorable" rating.

“Before" and “After"

Much of the value of an adviser to a plan sponsor is the ability to evaluate what providers are better at providing the type and level of service a specific plan requires. When selecting those providers with the best service, a few names appeared on multiple lists. Fidelity Investments was selected best in the best service to small plans, mid-size plans, and large plans. Merrill Lynch also made the best service list in those three market segments, but came in fifth, third, and second, respectively. Principal Financial Group was in the top five for the micro-, small, and mid-market segments.

In our three adviser-focused categories—best adviser support post-sale; best adviser sales/marketing support; and best fee structure for advisers—there is less agreement than in last year’s survey.

Although not in the same order, the top three providers in the categories of best adviser sales/marketing support (Fidelity Investments, John Hancock Retirement Plan Services, and Principal Financial Group)—support ahead of the sale, effectively—were the same listed in best adviser support post-sale.

Both Principal Financial Group and John Hancock Retirement Plan Services made the best fee structure for advisers list, but Fidelity was absent—noticeably, in view of its strong performance in the services category. American Funds, which made the shortlist for sales/marketing support, topped the “fee structure for advisers" list—and was, in fact, cited more than twice as much as any other provider in the top five.

For the most part, there is agreement between the vendors appearing on the best service lists to plan sponsors in various size segments and the lists focused on adviser services. Intuitively, one might expect that advisers consider how they are treated by a vendor when deciding whether or not that provider will be on his shortlist. However, in light of increased disclosure regulations, it is hopeful that, at some points, advisers look for the best of both worlds and want to work with providers that offer excellent services to the adviser, while providing the best service to the plan sponsor client.

Respondent Perspectives

Advisers surveyed have an average of $974.6 million in advisement in retirement plans. Speaking to the few teams focusing in that large-plan market that outweighed the many, the median AUA in retirement plans was $120 million. Although only 21.4% of advisers are working exclusively with retirement plans, more than half of advisers (52.7%) say that 80% or more of their assets under advisement represent retirement plans. The largest group of advisers, 36.3%, has been in the business for between 10 and 20 years, while the second largest group has been working with these programs for three through 10 years.

Among survey respondents, 85.5% of them are paid with asset-based fees, 53.6% receive some commissions, 23.8% are paid via ERISA budgets (see "A New Way to Pay," PLANADVISER, May-June 2008), 23% are paid via hard dollars, and 22.2% are paid on a per-project basis (the results total more than 100% because respondents are receiving compensation in a variety of forms). A scant 6.9% are paid a per-participant fee, and 8.9% report receiving some other form of compensation.

While the recordkeepers clearly are involved with providing participant services as part of their annual services, 97.5% and 96.7% of advisers do enrollment meetings and ongoing participant education for their clients, respectively. Of those, 92% of advisers include enrollment meetings in their retainer packages, and only a few less, 91.1%, of the 236 advisers include ongoing participant education.

Response Profile

Total assets under advisement

Average: $1.14 billion
Median: $200 million

Assets under advisement in retirement plans

Average: $974.6 million
Median: $120 million

Percentage of assets representing retirement plans

Years as an adviser to employer-sponsored retirement plans

Offer services as a fiduciary

Yes: 63.2%
No: 36.8%

Adviser firm affiliation

Compensation

What is your target market?

Top Five Providers

Overall service to micro plans (under $5MM)

QR: 171

1. John Hancock Retirement Plan Services (19.3)
2. The Hartford (8.8%)
3. Principal Financial Group (7.6%)
4. Transamerica Retirement Services (5.8%)
5. American Funds (5.8%)

Overall service to small plans ($5MM-$50MM)

QR: 164

1. Fidelity Investments (15.2%)
2. Principal Financial Group (11.0%)
3. Newport Group (7.9%)
4. Prudential Retirement (6.1%)
5. Merrill Lynch (5.5%)

Overall service to mid-size plans ($50MM-$200MM)

QR: 125

1. Fidelity Investments (17.6%)
2. New York Life Retirement Plan Services (13.6%)
3. Merrill Lynch (12.8%)
4. Prudential Retirement (9.6%)
5. Principal Financial Group (8.0%)

Overall service to large plans (more than $200MM)

QR: 89

1. Fidelity Investments (30.3%)
2. Merrill Lynch (12.4%)
3. Charles Schwab/401(k) Company (7.9%)
4. New York Life Retirement Plan Services (6.7%)
5. JPMorgan Retirement Plan Services (5.6%)
5. T. Rowe Price Group (5.6%)

Adviser sales/marketing support

QR: 144

1. Fidelity Investments (16.7%)
2. John Hancock Retirement Plan Services (13.9%)
3. Principal Financial Group (9.0%)
4. American Funds (7.6%)
5. Merrill Lynch (6.3%)

Adviser support post-sale

QR: 140

1. John Hancock Retirement Plan Services (12.9%)
2. Principal Financial Group (12.9%)
3. Fidelity Investments (7.9%)
4. Prudential Retirement (7.1%)
5. The Hartford (6.4%)
5. Newport Group (6.4%)

Fee structure for advisers

QR: 116

1. American Funds (18.1%)
2. Merrill Lynch (7.8%)
3. Principal Financial Group (7.8%)
4. Newport Group (6.9%)
5. Great-West Retirement Services (6.0%)
5. John Hancock Retirement Plan Services (6.0%)

QR = qualified respondents

METHODOLOGY

In August 2007, approximately 7,500 online survey questionnaires were sent to financial advisers from the PLANADVISER magazine database, as well as client lists supplied by defined contribution (DC) recordkeepers. We received 382 usable responses before the close of the survey on August 8, 2008, of which 250 passed our eligibility criteria that the adviser be “personally involved in evaluating and recommending DC plan providers/recordkeepers on behalf of qualified plan clients."

The questionnaire, developed solely by PLANADVISER editorial and research staff, consisted of more than 40 questions. The topics covered by the questionnaire included advisers’ opinions of retirement plan recordkeepers, advisers’ favorite fund providers and fund options, investment evaluation and selection for qualified plans, practice management, and demographic questions about the size and scope of the adviser’s qualified plan business. In addition to the segment printed here, responses related to investments were published in the September-October issue and responses related to practice management and detailed demographic information were presented at the PLANADVISER National Conference and in the October special issue.

In the provider favorability section, advisers were asked their perception (very favorable, somewhat favorable, not favorable, no opinion, or have never heard of) of 90 providers. In order to qualify for listing here, at least 50 advisers had to give an opinion (very favorable, somewhat favorable, not favorable) of a provider. That led to 43 defined contribution recordkeepers being listed here. The count next to each provider is the number of advisers who gave a favorability rating for each provider, and the percentages are based on that sample size.

Illustration by Chris Buzelli