Nearly Half of Plan Sponsors Seeking New Advisors in 2022: Fidelity

Change is afoot in the retirement plan industry this year, with plan activity and competition among plan advisors reaching multiyear highs, according to Fidelity Investments’ annual plan sponsor attitudes study released Tuesday.

The study found that although 76% of sponsors expressed satisfaction with their advisor, 47% are looking for a new one, up from 34% in the 2021 survey. Forty-eight percent are considering a change of record-keepers.

This search for a new advisor is driven by several factors, including:

• Better employee communication and education is needed. 
• Another advisor offered a superior investment lineup.
• An advisor who can deal more effectively with servicing issues with the record-keeper is needed.

Fidelity noted that plan sponsors are seeking more advisor expertise in many areas, notably proactive suggestions for improving plan performance, cited by 51% of sponsors.

“Plan sponsors are continuously seeking more expertise from their plan advisors year-over-year to help them in a more diversified capacity and are not afraid to look elsewhere if a competing advisor offers a better experience,” Liz Pathe, head of defined contribution investment only sales at Fidelity Institutional, said in a statement. 

“With such strong activity this year, it increases the expectations and pressures surrounding this space.” 

The online survey was conducted in March among 1,285 plan sponsors on behalf of Fidelity, which was not identified as the survey sponsor. Respondents were the primary person responsible for managing their organization’s 401(k) plan, and confirmed that their plans had at least 25 participants and at least $3 million in plan assets.

Advisors’ Value

According to the survey, advisor solicitations doubled over the past year. Two-thirds of plan sponsors said prospecting advisors piqued their interest by demonstrating their knowledge of 401(k) plans, offering lower costs and indicating willingness to help with fiduciary responsibilities.

Fidelity said this shows that sponsors value advisors who can provide education and improve outcomes the most. 

Ninety-one percent of sponsors reported that advisors help promote their retirement plan to current and prospective employees, a key factor in attracting and retaining talent. 

Advisor guidance regarding health savings accounts is also important. The survey found that advisors who had conversations regarding HSAs earned an 11-point higher satisfaction score than those who did not. 

Evolving Investment Menus

This year, 93% of sponsors in the survey said they plan to make changes in their investment lineups. Twenty-seven percent said they will expand the number of sustainable or environmental, social and governance funds; 27% will increase the number of investment options; and 26% will increase the number of managed account options they offer.

Asked about their interest in ESG, 73% of sponsors said their advisor has proactively mentioned ESG investment options and 75% said they want to know more. 

As for actual investments, 44% of sponsors said they prefer ESG-focused strategies that invest only in companies that screen well based on various ESG factors, while 48% said they prefer ESG as a management focus and one of many inputs used to make investment decisions. 

“Plan sponsors are taking an active role in evaluating various investment menu additions that are at the forefront of our industry,” Pathe said. “Providing education and guidance during a time where our investment landscape is constantly evolving is pivotal in helping employees strengthen their financial knowledge.” 

Supporting Retirement Readiness

Sponsors are generally highly satisfied that plans are meeting their goals: 76% satisfaction rating for advised plans vs. 65% for non-advised ones, according to the survey.

Twenty-two percent of plan sponsors said they measure their plans’ success based on the benchmark of industry standards for employee participation/savings rate goals, while 19% based their measure on employee happiness and 13% on participation levels. 

Seven in 10 sponsors believe employees are saving enough for retirement, with 64% considering the auto-enrollment deferral rate/company match a sufficient retirement savings rate — up from just 46% in 2018. 

Competing financial priorities, however, are affecting employee savings, according to plan sponsors. Half said current living expenses are too high, 40% pointed to a lack of discipline in saving for future needs and 37% cited high health care costs. 

Sixty-two percent of sponsors reported that more than half of employees retire early, 34% for reasons within their control and 28% for reasons beyond their control. 

To combat these competing financial priorities, 88% of sponsors expect to make plan design changes in 2022, with 27% planning to increase their matching contribution and 34% reporting that that change was made in the past two years. 

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