Market Strategies International released on Monday a survey explaining defined contribution plan sponsors’ priorities when it comes to choosing a recordkeeper.
While there are several factors in choosing a partner, Ellie Bond, product director for MSI and lead author of the report, noted that education and support — both for the sponsor and the participant — were important differentiators.
Namely, small plans are most looking for personal attention — think someone who will visit their office to educate participants — and large plans need help with features like auto-enrollment and auto-escalation.
The qualitative survey follows up on one finding from an earlier Retirement Planscape report that found plan sponsors cite being “easy to do business with” as the most important factor when selecting a plan provider.
First, though, Bond noted the role consultants play in directing sponsors’ attention to a particular provider.
“Plan sponsors are very up-front about the fact that they all rely heavily on investment consultants and financial advisors and their input in order to help them narrow down the field” of recordkeepers, she said. “They know that they need to have that level of input on a quantitative basis to say, ‘You help me screen this field of an inordinate number of people. Help me get it down to a core group that are going to be suitable to me that I can consider.’”
When they whittle down their options to a short list, that’s when chemistry and trust play a role, Bond added.
Bond compared the process of evaluating a new recordkeeper to a job interview. “People are coming in, we’re seeing how well we work together,” she said of the process. “There are going to be times when we’re going to be in the same room as one another working on a project together, and we need to know that we have that rapport and can work together efficiently.”
Last year, MSI did a separate qualitative study of investment consultants about the importance of chemistry, finding a “very similar story” to the one that surfaced in the current study, Bond noted. “They were saying, ‘As much as I’d like to think it was entirely me making the decision, you do have sponsors coming in and they will judge some things on how well that chemistry works.”
The report asked respondents to list what they find important from the recordkeepers they work with. “Unsurprisingly, low fees was one of the principal table-stakes,” Bond told ThinkAdvisor on Monday. “Participant administrative support [was] absolutely key; almost more important than sponsor administrative support because they felt, ‘If my participants are happy and their administrative support is being taken care of, that actually takes almost more off my plate.”
Stability at the firm was also important, Bond said. “At least that nothing negative has been said about them in the press. That’s very much a case of how name isn’t the most important thing in world, but it is certainly high up there.”
Less than critical but still extremely important, Bond said, were online tools and resources, participant education and fees, sponsor education, compliance assistance and having a range of investment options. “There were a number of other things in there, but those were the core things that they were talking to as being really important,” Bond said.”
She added, “The highlight that I took from this in terms of what sponsors are really looking for is that participant-education, participant-support piece and how that can really be a differentiator.”
That’s especially true of the smallest plans, Bond said. She said micro or small plans often want providers who can provide big-plan service and engagement, but that it’s hard for them to find. “Some of the things that symbolize that [service] were the level of participant support people were getting. Coming into the office and offering to spend the day educating participants is one example of that.”
In fact, Bond said, personal interaction was seen as something of a status symbol for smaller plans. “Having someone come out physically was a huge symbol of having attained that level of customer service.”
Other criteria important to small and micro plans were having a single point of contact and having a full range of investment options available to them.
Large and mega plans had more sophisticated needs and larger teams, Bond said, but what really stood out was “the difference in the way they work with their participants and their relationship […] then impacted the way they work with the plan provider.”
For example, she said, large and mega plans were more interested in retirement readiness. “They were much more in a position where they were talking about matches. They were talking about automatic plan features, wanting to implement auto-increase, auto-enrollment, those kinds of things. They were much further down the line with those.”
By comparison, micro and small plans took a position of “‘We’d love to, but we can’t,’” Bond said. Some even said they weren’t sure it was their place to have that conversation with plan participants. “They do want their plan providers to be having those conversations,” she said. “I think they’re a little bit skeptical about how far they think that’s going to be effective. In the smaller [plan] end, they feel the best they can do is sit down and have a conversation or offer a conversation that comes by the plan provider with their participants and hope for the best.”
Bond stressed the importance of participant education. “We describe it in the report as the closest thing to a silver bullet,” she said. “It really opens the door to being able to have further conversations and expand the plan. It’s becoming increasingly important to play a proactive role in provider and participant education; make as many resources available as possible and be there for them. As much as everyone wants online tools, [respondents] kept talking about wanting someone to come in and have face time with their participants and I think that won’t go away any time soon.”