July 26, 2011

Advisor Influence on Retirement Plan Sponsors Expected to Grow, Study Says

Reliance on experts to help prepare for retirement likely to rise, Diversified says

Diversified, a retirement plan administrator, released a study Monday that predicts plan sponsors will rely more heavily on retirement plan advisors as the demand for holistic planning services grows.

While the study, “Prescience 2015: Expert Opinions on the Future of Retirement Plans,” found just 10% of plan sponsors will likely switch providers through 2015, 35% said they will use the services of a professional retirement plan advisor.

“The emergence and organization of professional retirement plan advisors will have a profound impact on our business over the next five years,” Joe Masterson, senior vice president for Diversified, said in a statement. “These professionals are dedicated to the retirement plans business, and therefore are well-suited to understanding plan compliance, designing appropriate fund arrays, positively impacting plan design and helping participants achieve funded retirements.”

More than one-third of plan sponsors will perform due diligence of their providers, the survey found, while 17% will add or replace at least one investment option.

The study identified several trends that will affect retirement plan advisors over the next five years:

  • Professional service standards will be established in areas such as fiduciary practice, contracting, revenue mix and fee disclosure, according to the study.
  • Plan sponsors with retirement plan assets exceeding $25 million will use retainers to compensate advisors due to restrictions regarding fee disclosure.
  • Similarly, advisors will no longer be in a position to receive compensation unless they assume ERISA Section 3(21) fiduciary responsibilities.
  • Participants will also benefit from the growing reliance on professionals because many workers would rather go to an expert for help making investment decisions than learn about investments themselves.

Along with a greater presence for advisors will come greater pressure on pricing and profitability. Almost two-thirds of experts on the study panel predicted profit margins for service providers will fall by 11 basis points.

“Advisors, like service providers, will also experience fee compression as more business shifts from an asset-based compensation model to a retainer model,” Laura White, vice president of marketing for Diversified, said in a statement.

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