2020
PLANADVISER Retirement Plan Adviser Survey

Beneath the Waves

Our annual Retirement Plan Adviser Survey uncovers treasures during a turbulent time

Retirement plan advisers, perhaps more than any other experts in our industry, have a good sense of the relative strength of the products and services offered by investment and recordkeeping providers. One adviser, speaking in September at the virtual 2020 PLANADVISER National Conference (PANC), said he works with more than 20 recordkeepers concurrently. And that might just be the median number; another speaker said her firm has relationships with over 60!

The 2020 Retirement Plan Adviser Survey (RPA), our 13th, amasses data from the adviser community to discover how these individuals select providers and funds, plus, as in other years, to pick up on any developing trends.

One investment product that continues to receive, and warrant, significant discussion is target-date funds (TDFs). Since passage of the Pension Protection Act of 2006 (PPA), target-date funds have become the investment option gathering the most inflows. These popular investments are the qualified default investment alternative (QDIA) for 77% of plans this year, according to early results of the 2020 PLANSPONSOR Defined Contribution (DC) Survey. Even considering how established TDFs have become, managers continue think about how to further develop the funds.

“Dislocations in the market, such as what happened this year because of the COVID-19 pandemic, can expose weaknesses in TDFs,” according to Nate Palmer, managing director, Portfolio Management Group, Wilshire Funds Management, also speaking at the recent PANC. “There may be tilts and biases within them. As an example, as we look at target-date funds, there is evidence of the emergence of blends—a nontraditional strategy.”

One section of the RPA Survey asked advisers to flag their five most recommended TDF series and to specify whether the underlying investments were active, passive or a blend. The numbers trended to a 50% active, 40% passive and 10% blend split, illustrating the diversity among choices this year.

Palmer noted that today’s new products include active/ passive blended solutions and collective investment trust (CIT) solutions, plus more asset class diversification. And he said he expects more to come.

Although the survey indicates a competitive split between TDFs that invest in active vs. passive funds, plan sponsors, and their advisers, seem to be divided on the strategies—e.g., one can argue that blends appeal only to a niche market.

Once that decision is made, the preferences for fund suites become clear from the data: Advisers desiring active funds tend to choose either American Funds or T. Rowe Price while advisers pursuing passive funds have a strong preference for Vanguard, followed distantly by one of three providers: Fidelity Investments, TIAA/Nuveen or BlackRock. In other words, most money going into TDFs is channeled to a few key brands.

The Effects of COVID-19 on TDFs Daniel Oldroyd, portfolio manager and head of target-date strategies at J.P. Morgan Asset Management, pointed out, also at PANC, that investors essentially went through an entire market cycle within less than a month this year. “In the course of three weeks, the markets dropped approximately 30%, then assets rallied,” he said. “Now, we’re conditioned that a 1% move in a day is tiny, because of the sheer amount of uncertainty.”

He compared this time to the Great Recession, when warning bells went off in 2007 and the markets went through a “slow-motion train wreck in 2008,” then started to rally around March 2009. That cycle spanned three years, so sponsors may be wondering how to judge their plans’ investment performance now. “I don’t know if two weeks in March and three weeks in April will merit the same impact as discussions during the 2008/2009 crisis,” Oldroyd said.

Another section of the RPA Survey asked advisers for the three most important criteria they use to evaluate/select/ monitor a target-date fund as the QDIA. The top three of 14 results were the fund’s glide path construction, plan demographics/participant needs, and pricing/fees. Comparing this data with tips offered by Department of Labor (DOL) is interesting in itself. One tip is to “inquire about whether a custom or nonproprietary TDF would be a better fit for the plan.” Another, not suggested in the survey, is to “develop effective employee communications.”

Recordkeeping Partners On the recordkeeping side of the industry, consolidation continues—with some significant changes, such as Principal Financial Group’s acquisition of Wells Fargo’s recordkeeping business last year and Empower picking up MassMutual’s and Fifth Third Banks’ retirement plan businesses, respectively, in September. The list of providers looking to work with retirement plan advisers is still lengthy, as shown by the 53 recordkeepers participating in the 2020 PLANADVISER Recordkeeping Services Guide.

Per the survey results, the most important standards that advisers consider when selecting a provider changed a bit this year. Like last year, value for price was the top choice, but cited by fewer advisers this year—53% versus 63.1% last year. A new second choice arose: quality of sponsor support (39%), perhaps a reflection of fielding this survey in late summer after advisers helped sponsors navigate the Coronavirus Aid, Relief and Economic Security (CARES) Act and other COVID-19-era issues. Fee structure for the plan, No. 3 last year, stayed at No. 3 but also had fewer advisers selecting it—38% of respondents vs. 51.7%. Last year’s second most common choice, website tools for participants, fell to fifth place this year. —PA

Art by Vikki Zhang