2013
Adviser Value Survey

Adviser-run plans excel in design, reviews and customizatio

2013 Adviser Value Survey: Without question, advisers bring extensive expertise in designing, running, analyzing and tailoring defined contribution (DC) plans, as shown across the board in this year’s survey of 7,000 plans nationwide by PLANADVISER’s sister publication, PLANSPONSOR.

Sophistication and Customization

Plans that use advisers are more likely to employ advanced and emerging plan provisions, such as a Roth contribution (50.1% of plans that use advisers have this feature compared with 43.9% of plans that do not use them), automatic enrollment (63.8% of plans with $1 billion or more assets with advisers compared with 52.0% of plans without advisers) and catch-up contributions for employees ages 50 and older (97.4% of adviser-serviced plans vs. 96.5% of plans not adviser-serviced). Adviser-run plans are also more likely to offer a health savings account and a 529 college savings plan (55.1% vs. 53.6%, and 16.1% vs. 10.5%, respectively).

Plans with an adviser at the helm are more apt to select as their qualified default investment option (QDIA) a custom target-date fund (TDF), a risk-based lifestyle fund or a professionally managed account. In fact, advisers are far more prone to offer customized TDF series in their plans (13.4% of adviser-run plans vs. 10.1% of those not adviser-run). Among plans in the $50 million to $200 million range, the disparity in these figures jumps significantly to 18.1% among plans with an adviser compared with 7.2% of plans without.

Higher Deferral Rates

While the most common default deferral rate continues to be 3% or 4% of compensation regardless of whether a plan is serviced by an adviser or not, it is clear that advisers are pushing plans to increase the deferral rate to 6% or higher. This 6% is most statistically pronounced among plans in the $50 million to $200 million range (12.1% of plans with advisers default their participants at this level as opposed to 6.1% of those without).

While automatic escalation is certainly an emerging trend among defined contribution plans, it is advisers who are most noticeably bringing it to the table, especially in plans in the $200 million to $1 billion range (47.5% of plans in this range with an adviser automatically escalate their participants compared with 38.3% in plans without one).

Advice

Certainly, one of the greatest benefits advisers have to contribute is advice; 10.8% of plans with an adviser will avail participants of investment advice through a third party, compared with 7.4% of plans without an adviser. Even more impressively, among the plans that offer advice, 45.6% do so through a financial planner or adviser outside of the plan. For plans without an adviser, this pipeline to professional financial advice is available in only 6.3% of plans.

Diversification

With the help of the adviser, the average number of investment options held by participants is higher (4.9 in plans with an adviser vs. 4.5 in plans without one), indicating an emphasis by advisers on providing greater choices for participants and diversifying their portfolios.

While non-adviser serviced plans tend to put all their eggs in one basket by selecting a target-date fund series composed of funds from a single firm, adviser-serviced plans are more apt to offer TDFs made up of funds from the plan’s current lineup, and nowhere is this more pronounced than in plans in the $50 million to $200 million range (11.7% vs. 3.6%).

Review and Expert Oversight

Adviser-managed plans review their investment options far more frequently than plans without advisers. Overall, 43.0% of adviser plans conduct this analysis quarterly, compared with 30.9% of plans without advisers—the difference is even more evident in the $50 million to $200 million range (67.9% vs. 47.0%). Adviser-run plans review administrative costs and fees every year (73.3% vs. 68.8%). They also formally review the DC plan provider every year (30.2% vs. 28.3%); this latter figure jumps to 40.1% compared with 33.9% in micro plans with less than $5 million in assets under advisement.

Advisers also prove their mettle by bringing expert oversight to the table; adviser-run plans are far more likely to have investment committees consisting of both internal and external people (23.6% vs. 16.7%). Even more significantly, plans with the benefit of an adviser are more likely to have a written investment policy statement (IPS) (69.9% vs. 56.8%). Adviser-run plans are obviously adept at issuing requests for proposals (RFPs)and are willing and able to change DC providers; among adviser-run plans, the tenure of DC providers averaging one to three years is as high as 14.1%, compared with 9.1% among plans without an adviser.

Fees

Another key factor advisers can provide is the ability to lower plan costs for sponsors. Adviser-run plans are more likely to have participants pay administrative costs directly, through revenue-sharing or wrap fees. If a plan that uses an adviser does not take this approach, the adviser is next most likely to create a way for the plan sponsor and participants to share responsibility for the plan’s cost.

Room for Improvement

While adviser-run plans clearly are better designed and more astutely managed, advisers need to improve in some areas. For starters, 33.6% of plans have no adviser, presenting a clear opportunity for those in the field looking to prospect for new business.

Outcomes are also lagging. Participation and deferral rates, as well as account balances, in plans with advisers are, surprisingly, lower than plans without this expert input. Participation rates in adviser-run plans come in at 72.4% vs. 73.1%; deferral rates average 6.0% vs. 6.2%; and account balances average $62,519 vs. $64.630.

With benchmarking becoming the norm among plan sponsors, advisers who lack in these areas and who are looking to prove their value-add to their sponsor clients will have to hope these key metrics have escaped the oversight of their customers—and take immediate action to improve their results.

Methodology

From early July through early September 2012, approximately 5,900 defined contribution (DC) plan sponsors responded to the PLANSPONSOR DC Survey, which consisted of more than 60 questions pertaining to satisfaction with DC providers, plan design, plan monitoring/oversight, investment options, fee structures, results/outcomes and use of financial advisers for the plan. 

For purposes of the results published herein, the survey responses were analyzed to compare DC plan sponsors who said they use retirement plan advisers to sponsors not using them. For more information on these results, or for further information on the PLANSPONSOR DC Survey, please contact surveys@assetinternational.com.