As fees sink, recordkeepers use quality of service to win advisors, sponsors

Workplace retirement plan recordkeeping fees, in free fall for a decade, may have found a bottom.

In 2017, NEPC, a consultancy to 401(k) plans and institutional investors, reported the median defined contribution recordkeeping and custody fee was $59 per plan participant, whereas it was $118 in 2006.

To retain and compete for business, successful plan providers are bolstering the service behind their product, according to a survey of plan advisors by Cogent Syndicated.

“As service providers have become so much more competitive on fees, it’s really service quality that is standing out as the key differentiator, for both plan advisors and plan participants,” said Sonia Sharigian, senior product director at Cogent and author of Retirement Plan Advisor Trends.

This year’s survey put a practical question to more than 500 emerging and established plan advisor specialists: Why do you stop recommending a recordkeeper?

The support and quality of service given to advisors, and the overall service quality delivered to plan participants were cited as the top two reasons. Fees were a relatively distant third.

That marks a change in advisor sentiment. Last year, fees were more often cited as the reason for firing a recordkeeper–more than the service they deliver to savers.

“The personal touch is coming to the forefront on what is resonating with DC plan advisors,” said Sharigian. “When we look at the industry leaders, little things—like having provider personnel on site for participant education meetings—matter.”

Recordkeepers such as The Principal Financial Group and Empower Retirement score well with advisors on that metric, said Sharigian. Strong digital capabilities are also a differentiator.

“The challenge is how to innovate on razor-thin margins. There’s a lot of pressure on service providers. Differentiation is being established through service—that’s not an area for providers to take lightly,” she added.

Perfection is less the goal than accountability, according to Cogent’s research.

“What we find really interesting in some of our qualitative research is that it’s not so much a question of whether a provider makes a mistake, but how well they respond to resolve the error,” said Sharigian. “Demonstrating accountability when there is a problem—like a transaction error—can go a long way in building more loyalty with advisors. Lack of accountability ranks high among the reasons why advisors drop providers.”

Respondents were asked to rank 14 service providers on the quality of their support to advisors, and separately on their support to plan participants. Here’s how the service providers ranked:

Plan advisor service and support

1. Principal Financial Group

2. Empower Retirement

3. America Funds

4. Lincoln Financial Group

5. Fidelity

Participant service and support

1. Principal Financial Group

2. John Hancock Retirement Plan Services

3. Fidelity

4. American Funds

5. (tied) Lincoln Financial Group, Empower Retirement