Investment Differentiation

One major role of the retirement plan adviser is to help the plan investment committee select and monitor plan investments. Advisers look for investment products that will align with the broader menu that is being constructed, often leading to work with defined contribution investment only (DCIO) providers. Alison Cooke Mintzer, Editor-in-Chief of PLANADVISER, spoke with Jordan Burgess, Senior Vice President and Head of Institutional Sales at Fidelity Financial Advisor Solutions, and Derek Wallen, Senior Vice President, DCIO Division Manager at Fidelity Financial Advisor Solutions, about how DCIO firms can be able partners to today’s retirement plan advisers.

PA: What is the role of defined contribution investment only in today’s retirement plan industry?

Wallen: DCIO firms provide investments, and investments are the engine of a retirement plan. We just completed a survey of 937 plan sponsors asking them how they evaluate the plan advisers they work with—the No. 1 way is by looking at the investment menu and investment performance on an ongoing basis. In addition, as a DCIO firm, we work with plan advisers to help them achieve better outcomes in the areas of plan design and participant engagement by leveraging our experience, investments and resources.

PA: What is the value of separating the investment provider from a plan recordkeeper?

Burgess: Fidelity believes advisers play a strong role in helping plan sponsors; in fact, our latest research indicates that 84% of plan sponsors use an adviser for their plan needs—that is up 9 points from 2012.

With our DCIO business, our strategy and business model is focused on supporting advisers, recordkeepers and plan sponsors with their goal of helping participants achieve better retirement outcomes. To us, this means having a strong institutional investment lineup with flexible pricing, investment and retirement thought leadership to provide meaningful insights, deep knowledge about recordkeepers across the industry and dedicated resources to support defined contribution (DC) professionals.

Fidelity also has a fully integrated, bundled platform and dedicated resources focused on delivering a world-class experience to advisers, plan sponsors and participants. At the end of the day, it is about a client-focused approach that addresses the diverse needs of our clients.

PA: How can DCIO providers aid plan advisers with their practice management and client service?

Burgess: We focus on differentiating ourselves in three key areas. First, we bring together retirement and investment expertise. At Fidelity, 60% of the $1.7 trillion in assets we manage are retirement assets, as of March 31, 2013. We also recordkeep over 20,000 plans with 12.6 million participants, as of March 31, 2013. Because of that, we have one of the greatest databases in the world to look at plan sponsor concerns and issues—for instance, what they’re doing with plan menu design and construction; participant behavior patterns through different market cycles; and the type of investment choices that will help participants reach retirement readiness and how that changes over time.

Second, we offer a comprehensive lineup of institutional-quality investment strategies that spans across market caps, asset classes and sectors. With our adviser fund lineup’s multiple share classes, we can meet the various plan pricing needs of the plan sponsor, recordkeeper and adviser.

The final part of our strategy is the expertise and resources we bring to the marketplace. We create thought leadership that people can use for practice management, participant engagement, plan sponsor engagement, as well as selling and retention efforts.

But our most important resource is people. We’re focused on having a very high-quality person that’s an expert in retirement and investments, and who knows how to apply that to an adviser’s practice to help them grow their business and work effectively with their recordkeeping partners.

Wallen: A big aspect of it is knowing what you’re good at. Then it’s understanding the client’s practice and making sure you’re applying it in the right way. It’s very important and incumbent upon DCIO providers to understand what a robust plan adviser team is trying to do, what the individual responsibilities are, and cater the DCIO tools to the specialized responsibilities of each person on the team. DCIO providers all have different tool sets and thought leadership capabilities, but it’s truly about understanding the client and delivering the right things to the right people to provide ongoing value.

Burgess: We want to leverage the scale and resources of the broader Fidelity enterprise, which means using our own proprietary DC database and also fielding our own research, like our annual Plan Sponsor Attitudes Survey. We also leverage what we learn from the other markets we operate in, particularly the advisory market.

Recently, we brought together investment thought leadership from our asset management team and combined it with knowledge around deferral rates and asset allocation trends from our proprietary DC database into one insight called Overcoming Retirement Barriers by Investing in U.S. Equities.

PA: How can advisers differentiate between different DCIO providers?

Burgess: There are several foundational elements. First, you’ve got to have investment and retirement thought leadership to help the adviser gain insight into participant behavior and plan sponsor concerns.

The second element is a quality, diverse, flexibly priced product lineup that can meet the different needs of the marketplace across all plan sizes. And the third key element is resources like plan menu analytical support to help improve the investment lineup.

Those three elements are critical. When they come from a firm with a strong brand with high-caliber people that have investment and retirement expertise, you have a successful strategy to support this business. Making a commitment to having the right number and quality of people to support the DC business is the key thread that pulls it all together.

Wallen: The biggest challenge advisers have is time. They cannot partner with everybody, as there are many recordkeepers and DCIO firms calling on them. To differentiate yourself, the adviser team has to respect your investment capabilities and the reputation of your firm, and has to think that you are unique in the ongoing support and value you can bring to their practice. Finally, I agree with Jordan, it is about the people. You are going to make your mark in this industry if you’re a DCIO firm that can provide an adviser with the right investment capabilities, a trusted reputation, unique tools and thought leadership content, and a sales support team that has the proper technical and professional skills. 

PA: What is the role of the plan adviser in helping a plan investment committee?

Burgess: It starts with having a very thorough, institutional-quality due diligence process. The adviser’s role is to help the committee fulfill their fiduciary obligations and make sure they have a very transparent, clearly documented and repeatable process for evaluating investments, and to educate that plan committee on what’s behind the numbers in each investment option and also to think about that organization’s objectives.

The role of the DCIO provider in that process starts with making sure that we can support the adviser and the plan sponsor with their in-depth, ­institutional-quality due diligence. You have to have the right materials at the right level of depth, such as quantitative analysis, transparency and insight into the underlying portfolio construction and all the appropriate risk measures. To support this need, we have a plan menu analytics team staffed to help advisers with fund mapping and sample plan menus. We’ve also invested in and expanded our institutional portfolio management team, which allows us to provide more client engagement and help advisers understand portfolio construction and what’s behind the numbers of the various funds. And, lastly, we can also provide direct access to portfolio managers.

Wallen: In our Plan Sponsor Attitudes Survey, 42% of plan sponsors said they need help understanding their fiduciary role. There’s a clear role for the plan adviser to go in and make sure the investment committee thoroughly understands what their obligations are, and then follow through on all those steps.