Perhaps the most important decision a 401k or 403b plan sponsor can make is finding and evaluating their plan advisor. The issue is at the heart of the DOL fiduciary rule making it more difficult for advisors to avoid acting in conflict with their client’s best interest – assuming the rule sees the light of day which is now in question.
Insights from the 2017 TPSU/NAPA Plan Sponsor Survey reveal what’s working and what’s not working in the relationships between defined contribution (DC) plan sponsors and their advisors.
Read: 2017 NAPA/TPSU Plan Sponsor Survey
The most common way that plan sponsors source a new advisor is through an RFP at 20% – almost 40% for larger plans – followed by inheriting the advisor (16%) and through a referral (15%). Plan sponsors that source their advisor through an RFP tend to be more satisfied. But RFPs are difficult to perform or costly if a third party is used.
An easier method to source an advisor is to review an advisor’s industry training and credential with 91% of plan sponsors indicating that these credentials are very or somewhat important when hiring a new advisor. There are higher levels of satisfaction among the 40% of plan sponsors that know all of their advisor’s experience.
The number one reason that advisors switched their advisor, which happens every seven to eight years, is that they outgrew their advisor (47%) followed by fees (26%) and the advisor not being responsive (24%).
The greatest drivers of loyalty are advisors anticipating the needs of plan sponsors and helping keep the plan in compliance. Yet plan sponsors value advisor’s ability to select investments the most valued service.
Finally, 63% of plan sponsors indicate that their advisor is willing to act as a fiduciary while the rest either don’t have a fiduciary advisor or don’t know.
The DOL rule as currently written would flush out advisors not willing or able to act as fiduciaries eliminating many conflicts of interest. A watered down version of the DOL rule advocated by many industry associations would be much less effective in eliminating inexperienced plan advisors.
