While 401(k) record keeper turnover has been in the low single digits for a long time, 17% of employers sponsoring a defined contribution (DC) plan surveyed by Fidelity are actively looking for a new advisor. Plan sponsors are starting to wake up to the fact that picking their advisor is the 1st and most important decision they should be making, way before and way more impactful than selecting a record keeper or investment managers.
84% of the plan sponsors surveyed by Fidelity with 25-10,000 participants are using an advisor and the #1 criteria for selecting one is their investment expertise. Makes sense, right? Not! Though investments are important, deferral rates, how early a person joins the plan and the match have a significantly greater impact on outcomes. With 86% of plan sponsors indicating that their participants are delaying retirement resulting in higher employee costs and lower productivity (deadly combo), picking an advisor who can implement the “Ideal Plan” leveraging auto plan features seems more important than their investment acumen.
Selecting the right plan advisor is not easy. Of the 300,000 active financial advisors, 250,000 are involved with a DC plan. Of those, only 25,000 have at least $25 million and the minimum required experience to manage a DC plan. Once minimum requirements are met, employers should find plan advisors that meet the specific needs of the plan, employees and company – in that order. (Advisors that have attained their C(k)P (Certified 401(k) Professional) designation, part of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson, are listed at Advisor Directory. Plan sponsors needing help conducting an advisor RFP (request for Proposal) can go here.)
Of note according to the Fidelity survey, CEOs tend to select the advisor; CFOs focus on fees, fiduciary liability and selection of the record keeper; and HR people do the admin work. But don’t be fooled into thinking that the HR person is not critical on all matters because they often act as gatekeeper to the CEO and CFO and can help advisors focused on outcomes get the proper recognition. After all, HR staff cares about people and the advisor who wants to show value must focus on improving outcomes while also making sure that fees are reasonable, liability is minimized and the work load is manageable.
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