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In Practice May 23, 2007
Significant Potential Exists for Advisers in Retirement Plan Market
Nearly half (42%) of plan sponsors do not have a relationship with a financial adviser.
Reported by Rebecca Moore
A new white paper from MassMutual Financial Group says that its research found the majority of plan sponsors who use the services of an adviser are very satisfied, but there is room for improvement in some markets. Further, although there are new opportunities, advisers currently in the business must focus on their delivery to current clients, since Mass Mutual’s research found that plan sponsors are approached nearly quarterly by competing advisers. Eighty-three percent of plan sponsors who engage an adviser said they are “very satisfied” with the relationship. However, the research indicated smaller plans ($10 million to $25 million) were less well-served by advisers, and sponsors were significantly less satisfied with commission-based advisers. Steve LaValley, Second Vice President of Marketing, Retirement Services Division, MassMutual Financial Group, and co-author of the white paper, explained that the small plan market gave responses indicating less satisfaction in virtually every area measured by the research. The biggest problem, LaValley said, was with adviser responsiveness to this group. As for dissatisfaction with commission-based advisers, LaValley indicated that sponsors did not necessarily know how their advisers were paid, but those who thought their adviser was paid commissions expressed less satisfaction. According to LaValley this was all about sponsors not feeling services provided by advisers were aligned with expenses. “The key is being explicit about what services are provided for what fees,” LaValley told PLANADVISER.com. MassMutual concluded from its research that successful advisers understand that service demands are changing. Advisers need to provide the services and service levels that are most meaningful to sponsors. MassMutual’s research concluded successful advisers: Keys to Business Success
- Need to assume the “quarterback’” role: Today’s advisers need to take the lead in the adviser/plan sponsor/provider relationship.
Need to foster the trust and confidence of the plan sponsor: Successful advisers know that by adhering to a policy of full fee transparency and always keeping the plan sponsor’s best interests at the forefront, they can build stronger, longer-lasting relationships.
LaValley said the research showed sponsors in the small plan market want advisers to be very knowledgeable about the sponsor’s business, play a generalist role, and be the go-to person for everything related to plan. Meanwhile, sponsors in the large plan market (over $50 million) are generally using advisers with a high level of expertise in a narrow area – to be the investment specialist, perform due diligence, or be the plan design expert, for example. Sponsors in the mid-size plan market ($25 million to $50 million) want their adviser to play a role that is a hybrid of the two for other markets. LaValley said this sponsor group expressed the highest level of satisfaction with their advisers. The research found there was a smaller group of experienced advisers who concentrated specifically on this market, and LaValley attributed that to the high satisfaction levels. “The services that came across as most important to sponsors are still the traditional roles of helping with fiduciary duties and helping with the investment line up, but there are a growing number of services becoming important, such as helping participants with savings and investing decisions and with distribution decisions,” LaValley said. While most of the 42% of sponsors who did not have a relationship with an adviser said they feel they have the knowledge and skills to manage their own plans, the majority acknowledged services an adviser could provide to help them. Sixty percent agreed adviser services would be helpful with respect to shopping for plan providers, and 58% agreed an adviser could be valuable in helping them strengthen their investment lineup. However, LaValley added that about 37% of sponsors indicated hiring an adviser would only add an expense that is not justified by the services provided. The white paper admonished, “[I]t’s imperative that advisers clearly define their value proposition in the areas that plan sponsors consider important.” Advisers should know that competition for business is fierce. The research found plan sponsors are approached by competing advisers on average nearly four times a year. Additionally, 16% of sponsors who use an adviser’s services have taken the initiative to contact other advisers, contemplating displacing their current one. As LaValley summarized, “It became clear through our survey sponsors are satisfied, yet they are getting called on by advisers who want the business. If the existing adviser is not showing his or her specific value proposition and specifically what sponsors are paying for it, he or she is at risk of getting replaced.” LaValley added, “The turnover is not so much from dissatisfaction, but from advisers not doing a good job of demonstrating their value.” The white paper, The Successful Retirement Advisor: Quantitative Research Analyzing Plan Sponsors’ Needs and Experiences, details the findings of research among sponsors of 401(k) plans with assets between $10 million and $300 million commissioned by MassMutual and conducted in August 2006. The study asked the following key questions: More information is at www.massmutual.com/retire. Risky Business