Russell Develops System for Improved Plan Design

Speaking with PLANADVISER about the new system, Ben Jones, director, defined contribution for Russell’s DCIO adviser-sold business, said that the system is primarily designed for wealth managers who want to expand their defined contribution (DC) business.  However, it addresses challenges faced by plan sponsors and participants as well.

Jones said that when Russell set out to develop this system, the first step was to identify challenges faced by each of these three stakeholders. The most important stakeholder is the participants, he said. Too often they are paralyzed by choice, they aren’t investing in a disciplined manner and they are not saving enough.

Smaller businesses – which are considered to be the best market for advisers looking to gain more plans – are challenged by the size of the task versus the size of their staff. Typically, the business owner is also doing H.R. and potentially sponsoring the plan and it becomes too much of an administrative burden. Because this person is wearing so many different hats, it’s difficult for them to sufficiently manage their fiduciary risks, and they need help making sure they have a prudent process in place.

The most common challenge for advisers in this market is essentially being able to deliver on the value they say they can bring to a plan sponsor. “They need to be able to deliver and explain the value of the fees they charge. It’s about execution,” said Jones.

The core of the system relies on improved menu design, said Jones. It can be implemented on any recordkeeper platform that Russell works with.  The investment menu should help participants with their savings challenges, so Russell created three investor profiles:

Do it for me investors – participants who would like someone else to do the investing on their behalf. Jones said that these investors would benefit from auto-enrollment in a target-date fund (TDF).

Do it with me – investors are participants who are more engaged in investment strategies, and would want to potentially talk with an adviser. “They want a solution to fit their needs and risk profile, matches their return expectations and are willing to really do some planning. For them, an asset allocation portfolio, risk based or managed accounts, might provide them with the right solution,” Jones said.

Do it myself – investors that take special interest in designing, implementing and monitoring their own investment strategies. Jones notes that this is often the smallest segment of participants, but also the most vocal. He said it’s difficult to satisfy them no matter what is offered in the investment menu. Russell suggests providing them with a brokerage or fund window, and allowing them to sign a waiver releasing the sponsor of fiduciary liability.

“Participants can easily identify where they belong, and it allows them t make the best choices,” he said.

This will allow sponsors and advisers to spend more time on the most important things, Jones explains, such as getting more eligible employees to enroll in the plan and any other objectives that particular sponsor has. 

As for servicing the plan, the system includes two tools: a model Investment Policy Statement (IPS) that outlines the different participant profiles and a Client Engagement Roadmap.  This roadmap tells the sponsor what the adviser is planning to do over the next eight quarters, explained Jones. It’s in a checklist format so the adviser can tell the sponsor what they are going to do, and then can point to what’s already been done. 

Jones said this service was rolled out to targeted advisers about two months ago.  Two plans have already implemented this system, which says to Jones that sponsors and advisers have validated that the challenges identified by Russell are indeed the challenges they want help with.