IMHO: Discontent “Ed″

There are other surveys in this space, of course, but ours stands apart, IMHO, for its breadth and depth, painting a portrait of the industry that transcends size, geography, and provider. And this year the survey, now in its 13th year, is even bigger than ever.

Over the years, asked to rank the criteria used in selecting their DC plan provider, plan sponsors have reliably opted to put “others’ first—and this year, as in every year we have asked plan sponsors to do so, they ranked service to participants as the most important criteria, garnering a ranking of 6.5 on a 7.0 scale. Once again service to plan sponsors was the second most important (6.50). Not surprisingly (particularly these days), investment performance was deemed the third most significant, while the financial strength of the provider was ranked fourth. Interestingly enough, the numerical importance of all of these declined slightly from a year ago (more on that in a minute).

There was, however, one service criteria that actually rose in importance—transparency of fees.

Transparency notwithstanding, reasonableness of fees remained a high priority—in fact, it was deemed more important than transparency (though one might well wonder how you can be sure of the former without the latter), while brand name funds (which dropped the most of any criteria in importance, and was the lowest ranked criteria in this year’s survey), and the industry knowledge of account managers and the sales force were relegated to near after-thoughts in the rankings. Clearly, it’s about what you do and how you do it, not how much you know.

If there appeared to be some deflationary trends in the weightings, there was an even more ominous trend for providers in the evaluations. Despite the rapid expansion of target-date funds, and the enthusiasm for qualified default investment alternatives (QDIA), “focus on participant asset allocation’ garnered a rating of just 5.74. Still, that put it ahead of the two lowest rated categories of participant service, overall participant education program (5.68) and fees for participant services (5.59—down from last year’s 5.64).

As for plan sponsor services, compliance was the top performing category, just ahead of the industry knowledge of account reps (though one should remember the relative unimportance accorded that knowledge in the evaluation category). Once again, fees were a sore spot: The next-to-lowest ranked criteria was fee disclosure (5.73); the lowest was fairness of fees (5.72). Some good news: Staff consistency/turnover was rated 6.04, and responsiveness to problems/inquiries a strong 6.18 on the 7.0 scale (though still down from 2007).

As a general rule, plan sponsors in the micro-plan segment, those with less than $5 million in assets, were happier at all levels than other segments. And, while it may be a function of higher expectations, the largest plan sponsors were noticeably less satisfied. Consider that while responsiveness to problems/inquiries was rated a 6.30 by micro plans, large plan sponsors gave their providers an average rating of just 5.68 on that 7.0 scale.

Now, what does all this mean for advisers? Well, it suggests that plan sponsors are less satisfied with the status quo than they were a year ago. Moreover, since the bulk of these responses were received well ahead of the recent market tumult, one can surely imagine that the level of satisfaction has not improved (though admittedly some advisers and providers will “shine’ in their response to the crisis).

More importantly, plan sponsors’ satisfaction with their provider is often “linked’ to that of their adviser (particularly when the adviser played a role in choosing the provider). And that link—particularly in what may be an emerging season of discontent – is something, IMHO, that all advisers—and the providers they choose to work with—would be well-advised to remember.