Fidelity's sixth annual Plan Sponsor Attitudes survey reveals that more sponsors are actively looking to fire incumbent plan advisors than ever before.
Jordan Burgess, who oversees DCIO sales at Fidelity Financial Advisor Solutions, doesn't think that is necessarily a bad thing.
In an interview with BenefitsPro, Burgess said the trend is in part explained by a shift in sponsor thinking.
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"The focus is moving to preparing participants for retirement, from a focus on fees and fiduciary compliance. It's a development we've really been seeing in the past year," he said.
The other factor driving the sea change? The vast majority of sponsors—86 percent—in this year's survey report that more participants are delaying retirement because of inadequate savings.
Burgess says that's resulting in hard costs for sponsors that likely weren't forecasted several years ago.
"Plan sponsors understand the math. They're looking at increased health care costs for an older workforce they expected would be retiring. That's also translating into higher costs in salaries, and other ancillary expenses like disability claims," he explained.
All of which is motivating sponsors to rethink plan design, says Burgess. More are demanding best-in-class solutions. And that means more are demanding best-in-class ideas and service from advisors.
Other data in this year's survey suggest sponsors aren't simply talking a big game when it comes to improving outcomes in their 401(k) plans.
The vast majority—85 percent—made some fundamental change in plan design, such as implementing automatic features, and 66 percent made a change in their investment menus, often adding life cycle options such as target-date funds.
Of the nearly 1,000 sponsors surveyed—plans ranged in size from 25 to 10,000 participants—17 percent are in the process of changing advisors.
While a minority, Burgess calls the number substantial. In 2013 only 10 percent of sponsors were actively shopping for a new advisor.
Half of those looking to replace incumbents cited the need for a "more knowledgeable advisor" as the reason. Burgess said 63 percent of sponsors are evaluating their advisor at least annually.
That is not to say that advisors are not answering the call for better service, says Burgess.
"We think a big reason behind sponsors' focus on retirement outcomes is due to the advisor community reshaping the conversation to plan performance," he said.
"Sponsors are demanding more knowledgeable advisors because more knowledgeable advisors are delivering proactive ideas on plan design, and ultimately on plan performance," added Burgess.
Despite the fact that more sponsors are in the market for better service, satisfaction with advisors is at an all-time high; of the 84 percent of sponsors that use an advisor, 70 percent said they are satisfied with their current provider.
Another 62 percent said they get "good value" from their advisor. Both of those numbers have been steadily climbing, according to Fidelity's data.
But even as sponsors are taking more action to improve plan design, and clearly setting a higher bar for advisors, 66 percent of sponsors said they have not set tangible income replacement goals for participants.
In Burgess' estimation, that's an opening leading advisors are taking advantage of.
"The best advisors are already having that conversation and helping sponsors design plans that have clear benchmarks for replacing participants' salaries in retirement," he said.
Fidelity recommends an income replacement goal of 50 percent. That typically means participants need 401(k) account balances to be worth 10 times more than salary at retirement.
The firm says a 15 percent annual deferral rate is needed to get there, assuming an annual 5.7 return on account balances.
"An advisor can design the perfect investment menu, and benchmark the best qualified default options, but if a participant isn't saving enough they're not going to reach healthy retirement goals. And sponsors won't reach their plan goals either," reminded Burgess.
The study identifies four habits of the most successful advisors. Aligning with sponsors' focus on plan outcomes is vital. So is the advisor's ability to prove their value.
The best advisors are also engaged with all of a plan's decision makers, from a company's human resources leadership, all the way up to the executive suite. And a close relationship with a plan's record keeper is helping successful advisors coordinate best-in-class solutions.
"There are a lot of good stories from this year's survey," said Burgess. "More plans are using advisors, more sponsors are taking positive action to improve outcomes, and more sponsors are stepping up their game."
Still, much work remains, cautioned Burgess.
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