Data & Research March 8, 2007
Plans with Independent Advisers Offer More Investment Options
Data from a new PricewaterhouseCoopers (PwC) survey shows that firms using an independent investment adviser (80%) to help them manage their plan are, on average, more likely to offer a greater number of asset classes.
Reported by Alison Cooke
The Trendsetter Barometer tracks the business issues and best practices of privately-held companies identified in the media as the fastest-growing U.S. businesses. The survey included 128 such firms.
According to the news release, eight in 10 “Trendsetter’ companies have an independent investment adviser to help them manage their plan including its fiduciary obligations under the Employee Retirement Income Security Act (ERISA). Fourteen percent have don’t have one and 6% are not reported.
“The increase in the number and type of investment vehicles offered by companies that retain the services of an independent investment advisor is no surprise,’ said Paul Bracaglia, investment advisory partner with PricewaterhouseCoopers’ Private Company Services, in the press release. “An independent investment advisor will review the investment options to ensure each participant in the plan has the opportunity to fully diversify his or her investment portfolio. More importantly, the adviser will focus on redundancy in the plan’s investment options.”
PwC said independent investment advisory firms are typically used (42%), while another 25% use a brokerage firm. A benefits consulting firm is used by 15% and the same proportion use a bank, insurance agency or trust company (15%). Five percent utilize an accounting firm for these purposes.
“Ensuring that the investment advisory firm is independent involves scrutinizing the advisor’s accreditation, fee structure and investment methodologies and philosophies,” said Bracaglia. “Company owners want to make sure that the advisor is bias-free, for example, has no financial compensation tied to the plan assets. Every company should ask to review its investment advisor’s Part II of Form ADV which is filed with the SEC to determine precisely how the firm is compensated. An investment advisor that is paid solely for their advice creates a relationship that will be truly independent.’
In general, 87% of companies currently offering a 401(k) or self-directed profit sharing plan offer, on average, 5.8 of the nine asset classes studied by the Barometer, with the top five most often offered options being large cap funds (88%), small cap funds (85%), international funds in developed countries (80%), money market funds (78%) and index funds (69%). Lifestyle funds are offered by 40%.
Having an ISP
Fifty-nine percent of companies say they have a formal investment policy statement for their 401(k) or self-directed plan, leaving 19% who do not, and 18% who don’t know. Most companies (54%) review the investment options in their plans on a yearly basis; however, 26% do so quarterly and 13% do so semi-annually.
Virtually all formal policy statements have been reviewed within the past two years (92%); only 3% reviewed their policy over two years ago or longer to see if it is consistent with their investment performance or process. Five percent were not reported.
Typical frequency that “Trendsetter’ companies review the investment options in their plans to ensure compliance with the IPS and ERISA is annually (54%). Another 26% are more frequent: quarterly (13%) or semi-annually (13%), while only 5% are less frequent than annually.
Also, only 5% of firms intend to use the automatic enrollment feature sanctioned by the Pension Protection Act (PPA) to get employees to contribute to a 401(k) account, according to the survey.
The poll found that most companies (65%) were uncertain whether they would use the automatic enrollment feature and 16% said they did not intend to.
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