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Plan Sponsors Looking for New Advisors Despite Record Satisfaction: Fidelity

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Despite plan sponsors’ satisfaction with their plan advisors being higher than ever, the percentage who are actively looking for a new advisor is also at a record high, according to a survey released Thursday by Fidelity.

The sixth annual Plan Sponsor Attitudes survey found that although satisfaction is at 70%, the percentage of sponsors looking for a new advisor increased from 10% in 2013 to 17% this year.

Not only is satisfaction at its highest level, but the perceived value advisors offer is also at a record, according to Jordan Burgess, senior vice president and head of specialist field sales overseeing defined contribution investment only (DCIO) sales at Fidelity Financial Advisor Solutions.

Fidelity surveyed more than 950 plan sponsors, including those who don’t use Fidelity as a recordkeeper. Plan sizes ranged from 25 participants to 10,000.

Advisor use among sponsors is high at 84% and has been “reasonably consistent” over the life of the survey, Burgess told ThinkAdvisor on Wednesday, staying between 85% and 90% most years.

“So a lot of plans use advisors, satisfaction is strong and at the highest level, and perception of getting a good value is at its highest level,” he said.

Why, then, the increase in sponsors shopping for a new advisor?

The No. 1 reason given by sponsors for looking for a new advisor is because they want someone more knowledgeable. Burgess believes they’re looking for two things.

“One is what they’ve looked for, for a long time, and that’s the standard stuff: Are they focused on helping you manage the fees in the plan? Are they focused on helping you manage the investments in the plan? Are they focused on helping you manage your fiduciary responsibility?” he said.

However, plan sponsors have also shifted their focus to improving outcomes for their participants, Burgess said.

“Last year was a big deal in that for the first time in the history of the survey, preparing participants for retirement became the No. 1 goal of the plan,” he said. “They still had the traditional items like attracting new employees or reducing costs related to the plan, but the No. 1 thing they were looking for from the advisors was to prepare participants for retirement.”

An April survey from Vanguard came to a similar conclusion, finding that DC plan sponsors were adopting more DB plan features to help participants achieve their goals.

In spite of that focus on outcomes, 86% of sponsors said they have participants who are delaying retirement because they don’t have enough saved.

“When we went deeper there we found that 66% of those same plan sponsors hadn’t defined a clear savings or retirement income goal,” Burgess said.

He suggested “a great prospecting question” for advisors to ask at the beginning of a relationship is whether the sponsor has clear savings or retirement income goals for their plan. “Most people are going to go ‘I don’t’ and that can lead into a conversation, ‘Well, I can help you set that goal and we can start to think about plan design changes, investment menu changes and participant engagement strategies, and help with that.’”

The survey identified four ways advisors can help plan sponsor clients. 1. Alignment with clients’ areas of focus. Since so many respondents have participants who are putting off retirement, advisors should focus on design features that can improve participation rates. Burgess said 85% of sponsors have made plan design changes in the last two years, most of which were to implement auto-enrollment. Other plan design changes included adding a Roth option, introducing or restructuring a match and implementing automatic escalation.

Two-thirds of respondents said they’ve made investment menu changes in the last two years, Burgess said. Most removed an underperforming fund and 40% added new funds to the lineup. “There’s a perception that menus are too broad or have too many funds,” Burgess said, but “some have added investment options.”

About a third added life cycle or target-date funds and a third added an index fund, he said.

2. Demonstrate value against clients’ success metrics. Two-thirds of respondents said they evaluate their advisor at least annually to examine the value they deliver, investment performance and costs and fees. Burgess said that 64% of respondents agreed having an advisor or consultant to the plan would benefit participants.

3. Involve all plan sponsor functions. The survey noted firm owners or CEOs, financial officers and HR team members were all key people involved in making plan decisions. Advisors should work with all of them to make sure that all aspects of a plan’s needs are being met.

4. Partner with recordkeepers. Advisors are not a plan sponsor’s only point of contact on the plan. Almost all of the sponsors who work with an advisor also have a relationship manager at the plan’s recordkeeper (92%), the survey found, and over 85% of those said their recordkeeper has started offering more services over the past five years, like employee communications and education, retirement and rollover planning, fee and fiduciary disclosure, and information on plan design and testing.

— Check out MassMutual, Envestnet Team Up to Offer Managed Accounts for 401(k)s on ThinkAdvisor.

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