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Practice Management May 21, 2024
Participant Data and the Race for Ownership
This story—the first in a PLANADVISER In-Depth series that focuses on participants—considers the jockeying for data in the retirement industry.
Reported by Beth Braverman
Art by Kiki Ljung
Amid the rise of machine learning and continued digital transformation across the retirement landscape, the role—and value—of Big Data in the industry appears to only be getting, well, bigger. For plan advisers, the increase in data availability and use creates myriad opportunities to better fit plan design to the needs of plan sponsors and better tailor financial advisement to the needs of participants.
But the debate continues as to whether plan sponsors must treat participant data as a plan asset, and regulations around the proper use of such data continues to evolve, according to industry players.
“‘Whose data is it?’ is a legal question that’s still somewhat up in the air,” says Tom Kmak, the CEO of Tigard, Oregon-based Fiduciary Decisions. “Some lawyers would say it’s the plan sponsor’s responsibility and they have to guard it and not give it to anyone. Others say it’s the participant’s data, and they should have the ability to opt in or out of other services. Others say the recordkeeper has responsibility for it.”
Protecting participant data is important to plan sponsors, with 20% of employers surveyed 2022 survey by Morgan Stanley at Work citing it as a top concern.
Case-by-case access
For now, in most cases, the plan sponsor and the recordkeeper typically hold most participant data, but there are use cases in which an adviser might request access to that data. Those might include big picture plan data—information like age, income, and employee tenure, that advisers can use to help guide the plan through investment and plan design decisions.
Advisers who provide wealth management or managed account services to employees might also need access to data to properly provide those services. In that case, advisers may need access to participant name and contact information, as well as their marital status, investment choices, and other information.
The number of advisers providing such services to participants continues to grow, with nearly 80% of advisers now saying that they offer a hybrid model with both retirement and wealth services, according to a 2023 survey by the Marsh & McLennan agency.
That trend reflects increased demand by participants. More than eight in 10 of whom told Voya Financial Inc. last year that they are interested in personalized investment guidance. Plan advisers can give restricted access to that data to advisers, as needed, says Mark Beaton, vice president of OneDigital Retirement + Wealth.
“So I might have read ability for participant data, but not write ability,” he explains.
Access to such data requires that both recordkeeper and adviser have tech capabilities to allow for API integration between their systems.
Oftentimes, when it comes to advice, advisers need to collect even more data from participants on top of what they can access from the plan sponsor or recordkeeper.
“It’s in the best interest of the participant for an adviser to have more data, so their advice is better,” Kmak says. “I can’t give you good investment advice if I don’t know that your significant other has $1 million in a retirement plan and that makes it much easier for you to retire.”
Following the Participant Lead
That said, advisers often run into participants who are hesitant to share additional data with them.
“You’re going to have participants who have no desire to tell you anything more than absolute basic information,” says Andrew Evans, CEO and founder of Rossby. “They want to participate in the plan, but they don’t want you to know anything more about them. That’s OK, don’t fight them.”
Willingness to share personal information may vary by age, with younger participants more open to providing such data to service providers. A recent Cerulli Associates survey found that 45% of Generation Z 401(k) plan participants are “very comfortable” sharing their current or projected spending with 401(k) providers, and 37% said they’d be open to sharing their nonretirement savings and account balances.
Looking ahead, Beaton says, there’s even more opportunity for plan advisers to use real-time data to provide targeted communications and advice to participants. For example, advisers might receive a daily notification about terminated employees, which they could then use to reach out to those participants about the next steps around their retirement accounts.
The increased use of data, however, means that smaller recordkeepers with lesser technological capabilities could get left behind, while those that have best-in-class data capabilities and an integrated wealth management arm will likely gain additional market share. However, it’s important for plan advisers to tread carefully.
“One of the biggest areas of concern for plan sponsors is that their plan data is going to be used in a way to sell participants on something they don’t need or get them to leave the plan when they shouldn’t,” says Mikaylee O’Connor, head of defined contribution solutions at NEPC. “That’s an area where there’s still a dance going on between plan sponsors and advisers.”
Meanwhile, Andrew Williams, an employee benefits attorney and partner with Golan Christie Taglia, expects that regulators will determine in the next few years that plan sponsors have a fiduciary duty to protect participant assets.
“If they’re protecting participants from excess fees and bad investments, why not protect them from an unacknowledged disclosure of their personal data by a plan service provider,” he asks. “But, for now, plan fiduciaries should tread carefully with participant data and worry about statutes other than [the Employee Retirement Income Security Act] ERISA. There are some state laws that might apply, including those that protect participant privacy.”This is the second installment of PLANADVISER In-Depth, a quarterly series delving into the world of 401(k) plan advisement and the future of retirement savings. The next article will focus on participants and financial wellness.
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