Retirement plan success: Practical sponsors see it one way, advisors another
A Vestwell report suggests the disconnect between SMB plan sponsors and advisors could lead to a missed opportunity to increase retirement plan participation.
The majority of plan sponsors (87 percent) in the small and medium-sized business (SMB) space said they spend less than 10 percent of their time managing their company’s retirement plan, and nearly 60 percent said plan success can be measured by the time it takes to manage the plan — the less time the better. A similar percentage said having no administration errors was a sign of a successful plan. Both markers fall under the category of saving time and work for the sponsor, according to a new report by digital recordkeeping platform Vestwell.
The report is based on a survey of 434 financial advisors, all who sell retirement plans, plus 64 plan sponsors to gauge their perceptions of recordkeeping technology and the challenges of selling and servicing in the SMB space.
How plan sponsors and advisors measure success
“With nearly 90 percent of Vestwell’s plan sponsor clients spending less than 10 percent of their time overseeing their plan, it’s no wonder they measure success based on no administration issues,” said Vestwell CEO Aaron Schumm. “But what was rattling is that only 39 percent of plan sponsors – compared to 61 percent of advisors – included participation rate as a top three factor of success. Participants create a great opportunity for advisors to drive value, but articulating that value to sponsors appears to be a missed opportunity.”
Advisors had slightly different perspectives than plan sponsors on how to measure plan success, with most (72 percent) indicating client satisfaction was the most important measure of success, followed by participation rates (61 percent) and plan cost-effectiveness (53 percent).
How plan sponsors see advisor value
The majority of plan sponsors surveyed (90 percent) work with an advisor and 89 percent of those said the advisor relationship adds value to their plan. Plan sponsors said advisors bring the greatest value in the areas of educating them on effective plan administration and recommending and monitoring plan investments, followed by educating plan participants, recommending plan design and fiduciary oversight.
Advisor offerings, trends
Advisors are looking to expand their offerings over the next 12 months to better serve plan sponsors. Participant wellness services topped the list of new services advisors expect to launch at 44 percent, followed by Multiple Employer Plans (MEPs) and Pooled Employer Plans (PEPs), managed accounts, health spending accounts (HSAs), guaranteed income products and participant account aggregation.
Advisors surveyed are also paying attention to a variety of retirement plan trends, including financial wellness services, Best Interest Regulation and fiduciary rules, advisor/recordkeeper consolidation, MEPs/PEPs, plan litigation, managed accounts and more.
Advisor view of recordkeeping tech affects role
The study asked advisors if they believe recordkeeping technology is in need of an overhaul and found that three-quarters of investors believe it does. The results of the study examine some of the differences between attitudes of those who do believe technology should be overhauled and those who think current recordkeeping technology is adequate.
For instance, when advisors were asked where they add the most value to clients, both groups cited investment education and recommending and monitoring plan design.
However those who favor an overhaul of recordkeeping technology believe educating plan participants is where they add the most value, while those who do not favor an overhaul said the biggest value they bring is supporting plan sponsors when they run into an issue.
“One can interpret this to mean that status quo advisors have come to view plan challenges as part of the system, whereas overhaul advisors want these problems fixed so they can focus on different things,” said the report. “They understand that the real value they provide is helping companies offer the best plans so people can save more for retirement versus helping sponsors with administration.”
In addition, while both groups cited challenges with integrating technologies, they diverged in other areas. Overhaul advisors cited high fees and poor user experience as challenges with recordkeeping technologies, while status quo advisors were more likely to point to poor customer service, inability to access client data and restrictive investment options as challenges.
Advisor, sponsor challenges
Advisors also weighed in on their biggest challenges selling in the SMB retirement space. The top challenge reported was prospecting (33 percent), followed by fee compression, too much hand-holding, difficulty scaling, and creating an efficient transition of employees to wealth clients.
They estimated that their plan sponsor clients’ primary pain points were around payroll data discrepancies, year-end testing, investment allocations and eligibility calculations.
“What Vestwell’s Retirement Trends Report survey really underscores is how challenges in recordkeeping can distract advisors from the more valuable aspects of their role,” said Schumm. “An advisor’s value doesn’t come from troubleshooting administrative challenges. Rather, where the advisor makes the most impact is by helping their clients operate a smart, sound plan while ensuring employees are getting the most out of their company-sponsored benefit.”
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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