Plan Sponsors Seeking ‘Higher-Touch’ Adviser Services

Plan sponsors seem to want more from their advisers, but that desire could pave the way for more paid services, according to a survey released Monday by Morgan Stanley.

In a survey of almost 200 401(k) plan sponsors, 80% said they work with plan advisers on their plans, and their responses highlighted a desire for more services related to investment decisions, participant planning tools and direct participant education, according to the qualified plan and wealth advisory’s 2024 Retirement Plan Survey.

When honing in on investment services, the survey found a shift toward 3(38) services, in which an adviser makes the investment decisions for the plan, as opposed to 3(21) services, in which a fiduciary makes recommendations.

“While 3(21) relationships are still about twice as common as 3(38) relationships, the gap is likely to continue closing,” Morgan Stanley wrote in the report. “Most 3(38) users have initiated these engagements in the past five years, and about half of the non-3(38) users are considering switching to this type of engagement.”

According to the survey, about 55% of plan sponsors have a 3(21) relationship, as compared with 27% who have a 3(38). More than half of those 3(38) setups began in the past five years. However, another 42% of sponsors are considering moving to a 3(38) investment manager.

“The increasingly complex investment and regulatory landscape is a catalyst for the continued rise of 3(38) relationships,” the firm wrote in the report.

The survey polled plan sponsors with assets ranging from $50 million to roughly $1 billion.

Participant Education

Another, perhaps less lucrative, area for advisers, at least initially, is plan sponsor demand for participant education and financial guidance for all employees.

Plan sponsors identified consultants and advisers as the most common source of participant educational resources at 47% of respondents. That outranked recordkeepers (46%), third-party providers (42%), internal staff (36%) and asset managers (23%).

“Historically, sponsors have predominantly relied on recordkeepers to provide these tools and resources,” the researchers wrote. “But recently, other service providers in the retirement ecosystem have begun offering this content, and today consultants/advisors are the most common source, according to our survey. This trend should continue as leading consultants continue to expand their core offerings to include participant education and engagement resources.”

Much of that education, according to the report, comes from education tools and resources such as online retirement planners (85%), account review and analysis tools (74%) and educational content (73%). But those are closely followed by live remote training sessions (52%), personalized financial guidance (50%) and live in-person training (47%).

Investment Lineups

Finally, the survey pointed to shifts in what plan sponsors want to see in an investment lineup.

While sponsors are not looking to increase the number of asset managers they use, more than one-third want to be able to offer expanded investment options. About one-quarter are likely to look for help in doing so (23%), with the other 77% saying it will be at least somewhat easy to make the move.

When it comes to adding relatively newer investment options for participants, plan sponsors appear to be taking action, having added or currently in the process of adding: target-date funds with guaranteed payouts (71%), multi-asset strategies (65%) and hybrid default investment options (56%), according to the survey. Meanwhile, 64% reported offering a managed account, and 22% more plan to do so.

Even retirement income solutions are making headway, with 41% of plan sponsors saying they are offering them and an additional 44% intending to. However, there are various stumbling blocks plan sponsors see in these solutions.

According to the survey, participant understanding and education leads the list of concerns at 65%, followed by fiduciary concerns at 53% and relatively higher fees at 48%.

“Offering participants access to educational materials applies to every part of the plan lineup,” the researchers noted. “But the need is particularly acute for retirement income solutions given how complicated these tools can be and how differently they work from mutual funds, traditional target date funds or other common savings tools.”