Ask retirement plan sponsors which advisors provide them with the best support, and they’ll point to RIAs.
TD Ameritrade Institutional reported Tuesday that RIAs provide more support than other plan advisors or administrators, and are much likelier to offer educational services to plan sponsors:
- One-on-one participant advice: RIAs 50% vs 29%
- Fiduciary support: RIAs 43% vs 23%
- Plan sponsor education: RIAs 40% vs 27%
The report said RIAs were 64% likelier to offer general investment advice, 60% more likely to weigh in on plan selection and design, and 34% more likely to handle enrollment.
These findings came in a telephone survey of 242 public and private sector plan sponsors with at least 25 employees, conducted Sept. 28 through Oct. 6 by True North Market Insights.
Plan sponsors that used RIAs reported satisfaction with their services and found it easy to work with them. Ninety percent extolled their knowledge of potential plan investment options and for their assistance in meeting fiduciary requirements.
A big majority of sponsors were satisfied with RIAs when it came to selecting plan administrators and record-keeping vendors, and with giving investment advice to participants.
“RIAs excel with retirement plan sponsors because they serve them with the same investor-first approach they use with individual investors and families,” John Newman, managing director of retirement plan services at TD Ameritrade Institutional, said in a statement.
“RIAs are performing better than non-RIA competitors, but they cannot afford to get complacent. There’s always room to grow.”
Indeed, only 28% of plan sponsors surveyed said they used RIAs. A quarter of those that did not said an RIA had never approached them.
That means there is a significant opportunity for advisors to increase their share of the market over the next few years, according to TD Ameritrade.
It said RIAs offered an open-architecture approach when recommending investments for clients, and offered the same approach for retirement plan solutions.
This could be attractive to the man plan sponsors that may be in the market for a plan provider.
The survey found that 60% of plan sponsors would consider switching plan providers over the next year, and that they were most likely to change providers to reduce plan fees or gain access to more diverse investment alternatives.
“An open-architecture investment platform and fiduciary advice are hallmarks of the independent RIA, which is held to a fiduciary standard,” Newman said.
“Plan sponsors are open to considering new approaches, so independent RIAs need to get more vocal about the strength of their offerings and how they can help.”
Retirement Plans Under Review
The survey found that evaluating current investment choices and encouraging greater plan participation were plan sponsors’ chief goals in the coming year.
Plan providers indicated that they were most concerned about the diversity of their investments, with most retirement plans offering mutual funds.
Respondents reported that only 27% of their retirement plans offered target date or lifecycle funds, and just 15% included exchange-traded funds.
Only 26% of plans surveyed had auto-enrollment, and 15% offered self-directed brokerage accounts.
Respondents were aware that current and would-be participants wanted individual help on investing.
Forty-four percent of plan sponsors characterized participants as “hungry” for one-on-one advice from a financial advisor, particularly with regard to planning for and investing in retirement, yet only 27% currently offered this to participants.
Plan sponsors said fiduciary education was one of the most important services they received from their plan advisors.
The survey found a big knowledge gap among plan sponsors in their understanding of how changing regulatory requirements may affect their role as fiduciaries.
Sixty-two percent did not fully understand the implication of the 2012 Department of Labor rules on fee disclosure.
Respondents using RIAs said they were already receiving updates and education on this issue from their advisors at twice the rate of those who do not use RIAs, with 30% of the latter saying they had not received any communications on fee disclosure requirements.
Plan sponsors report being similarly unaware of the DOL’s proposed new rule on fiduciary compliance. Fifty-five percent said they did not have enough information, and 15% said they had never heard of the proposed rule.
The survey found that 70% of plan sponsors may not know the details of the U.S. Supreme Court’s decision on investment and fee monitoring (Tibble vs. Edison), but respondents believed that their plan offerings should be in the best interests of participants.
Sixty-nine percent of sponsors said they benchmarked the fees and performance of funds offered in their retirement plans at least once a year, yet 53% were uncertain whether their plan’s mutual fund options are in the least expensive share class available to their plan.
“A lot is changing for employer-sponsored retirement plans, so it’s not surprising that plan sponsors need more guidance and services for themselves and for their participants,” Newman said.
“Now more than ever, RIAs are poised to shine for plan sponsors—they are hard wired to deliver fiduciary support and investment advice in a way that other providers are not.”
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