The Hidden Value of DC Advisors

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1 THE INSIGHT SERIES The Hidden Value of DC Advisors Understanding the Impact Financial Advisors Have on DC Plan Sponsor Satisfaction A Market Strategies International company

2 Table of contents Introduction Key Findings Satisfaction with Financial Advisor Services Satisfaction with Services Satisfaction with Plan Sponsor Services Strategic Implications Methodology A Market Strategies International company Copyright 2012 by Cogent Research LLC. All rights reserved. Reproduction of any part of this report is illegal under Federal Copyright law (17 USC 10 et seq.) and is prohibited. Photocopying or transmission of the information in any electronic or mechanical fashion outside of the purchasing organization is strictly forbidden, unless the user has purchased an annual usage license from Cogent Research that allows the user the capability to quote directly from the content with attribution to the firm. This report is intended exclusively for distribution within the purchasing firm. Distribution to or use by any other firm, subsidiary, affiliate, external agent, or client is prohibited. Contact Cogent Research to learn more about redistribution/attribution permissions. Analysis relies on data from primary research and third-party sources deemed to be reliable. Although believed to be accurate, this information is not guaranteed. Publication date: July 2013 Cogent Research, INSIGHT SERIES

3 Introduction Intermediaries in their various forms continue to play a significant role in supporting defined contribution (DC) plan sponsors, helping to bridge the knowledge and expertise gaps than can exist across all business sizes and sectors. For plan providers, the use of intermediaries presents an interesting dynamic. Advisors can, and do, play a pivotal role in shaping the perceptions that sponsors and participants have of the provider, and yet as third parties, may not be aligned to a single uniform message or position on the provider s brand. This is not to suggest that intermediaries and plan providers are in conflict; indeed they are united by their objective to provide high standards of support and expertise to plan sponsors and participants. Yet with many areas of overlap in terms of objectives and support, it can be challenging for both parties to demonstrate the unique value that each brings to the plan sponsor relationship. This research paper looks specifically at the most commonly used intermediary, the financial advisor (FA). Segments included in this analysis are Micro (less than $5 million in DC plan assets), Small/Mid (plans with between $5 million and $100 million in DC assets), and Large/Mega (over $100 million in DC plan assets). We divide the population into two groups: plan sponsors who report to work with FAs and those who do not. We then analyze plan sponsors stated satisfaction levels with their plan providers among these two cohorts. The research highlights some key differences and points to areas where plan sponsors are failing to draw accurate distinctions between the support provided by each party. Conclusions are then offered regarding the strategic implication of these findings for both FAs and plan providers. 1 Cogent Research, INSIGHT SERIES

4 Satisfaction with Financial Advisor Services Nearly half of all 401(k) plans utilize a FA today, and while satisfaction levels are generally favorable (66% of plan sponsors stating that they are very satisfied with their advisor), there is undoubtedly room for improvement. Issues around fees and commissions play a key ongoing role in influencing overall satisfaction, but despite recent dominance in media reports and regulatory attention, fees are only part of the picture. Our research suggests that sponsors of Micro and Small plans in particular feel that their FAs could be doing more on a range of key service measures. This is particularly significant given the high reliance on and usage of FAs seen in these segments. While plan sponsors acknowledge that FAs provide significant benefits for them personally, they are far more critical when it comes to the benefits for their participants. Nearly three-quarters (73%) of all plan sponsors are very satisfied that their FA is accessible to them, compared with just 65% stating that they believe their FA is equally available to their participants. Even fewer (60%) plan sponsors state that they are satisfied with the role their FA plays in educating participants on the plan and investment options. EXHIBIT 1 73% of all plan sponsors are very satisfied that their FA is accessible to them, compared with just 65% stating that they believe their FA is equally available to their participants. EXHIBIT 1 SATISFACTION WITH FINANCIAL ADVISOR SERVICES TOP 3 BOX PLAN SPONSOR SERVICES Total Micro Small Mid Large* Being accessible to you 73% 73% 80% 75% 81% Consulting on general plan design, services, and features 65% 64% 76% 67% 80% Monitoring and offering recommendations on plan investment options 65% 64% 79% 64% 83% Helping to manage your organization s fiduciary obligations 62% 61% 69% 66% 81% Aiding in the retirement plan provider selection process 61% 60% 71% 64% 80% Providing important regulatory or administrative updates that impact your plan 60% 60% 65% 66% 79% Monitoring plan provider fees 56% 55% 63% 64% 82% Monitoring other consultants to the plan 52% 52% 61% 60% 83% PLAN PARTICIPANT SERVICES Total Micro Small Mid Large Being accessible to plan participants 65% 65% 73% 62% 68% Educating participants on the plan and investment options 60% 60% 69% 51% 61% Advising terminated or retired plan participants of their distribution/rollover options 56% 55% 65% 59% 54% Base=Plan Sponsors Using a FA *Mega Sample Size Too Small to Report Source: Cogent Research: Retirement Planscape Cogent Research, INSIGHT SERIES

5 Satisfaction with Services While it may seem logical to conclude that FAs are focusing far more effort on supporting plan sponsors than on participants, our research suggests that this assessment may be underestimating the true impact of advisor influence on sponsors overall satisfaction with their plan provider. To better assess the true impact of the FA, we defined two groups with a plan sponsor population: those who work with a FA and those that do not. We then examine plan sponsors satisfaction with a variety of different aspects of their experience with the plan provider. The contrast between those with a FA and those without is striking. FA users are significantly more likely to report strong satisfaction with their provider s services across nearly all measures. The most substantial differences are with participant problem resolution and help with rollover and distribution options. Among those with a FA, 84% and 85%, respectively, state that they are highly satisfied with those two services they receive from the plan provider. In both cases this represents a 12% boost over plan sponsors without a FA. Other substantial differences are seen with participant website capabilities and investment guidance, which both show 11% higher satisfaction when a FA is involved in the relationship. These findings suggest that either FAs are playing an active role in problem resolution and the facilitation of support that the sponsor is simply not aware of, or that FAs are directing sponsors to providers where such services are better managed. Whichever is the case, satisfaction increases around the 11 12% mark, reflecting a far higher attainment for FAs in consulting effectively on general plan design services and features than the 65% satisfaction shown in Exhibit 1 implies. These results clearly shed light on an issue of recognition for FAs and certainly contradict any assumption that they are overlooking participant needs. EXHIBIT 2 Satisfaction levels among those with a FA is 12% higher than plan sponsors without a FA. EXHIBIT 2 SATISFACTION WITH PARTICIPANT SERVICES TOP 2 BOX account statements website and online capabilities Responsiveness of participant phone service reps Helping with distribution/ rollover options problem resolution Voice response system ease of use educational materials investment Innovative guidance and retirement advice planning tools Total 88% 82% 81% 78% 77% 74% 70% 68% 67% With a Financial Advisor 91% 89% 86% 85% 84% 80% 75% 75% 67% Without a Financial Advisor 85% 78% 78% 73% 72% 69% 66% 64% 66% Base=All Plan Sponsors Source: Cogent Research: Retirement Planscape Cogent Research, INSIGHT SERIES

6 Satisfaction with Plan Sponsor Services Similar impact can also be seen when we examine sponsors rating of their own administrative support requirements. There is an average of 10% improvement in satisfaction levels across all measures where a FA is involved. We see the quality of consulting, a key metric where FA involvement may have a significant impact, showing the most significant jump at 17% over those without a FA. EXHIBIT 3 The improvement in each of these service variables where a FA is involved in the relationship is, of course, highly beneficial to the plan provider as is, but results are even more striking when examined holistically. When plan sponsors were asked to assess their overall satisfaction with their plan provider, those with a FA report 17% higher satisfaction with their provider than those without a FA (72% rating top 3 box satisfaction with a FA versus 55% without). These results further support the research findings that FAs are adding value to the overall relationship plan providers have with plan sponsors. Plan sponsors with a FA report a 17% higher satisfaction rate with their provider than those without a FA. EXHIBIT 3 SATISFACTION WITH PLAN SPONSOR SERVICES TOP 2 BOX Plan sponsor Plan website and administration online support capabilities Form 5500 filing support Plan sponsor problem resolution Plan sponsor service/ relationship team Fiduciary services, support and legislative updates Consulting on general plan design services and features Quality of enrollment/ participant meetings Support increasing participation rates Number of enrollment/ participant meetings Total 82% 82% 81% 80% 79% 75% 72% 69% 66% 62% With a Financial Advisor Without a Financial Advisor 86% 90% 83% 85% 85% 80% 82% 78% 72% 68% 79% 76% 80% 77% 74% 72% 65% 62% 62% 58% Base=All Plan Sponsors Source: Cogent Research: Retirement Planscape Cogent Research, INSIGHT SERIES

7 Strategic Implications FAs are undoubtedly generating significant measurable benefits for all parties involved in institutional retirement planning. However it is clear that some of these benefits are not currently being recognized by plan sponsors. With plan provider satisfaction increasing significantly when a FA is involved in the relationship, there is undoubtedly a need for providers to not only appreciate the boost that FAs are currently facilitating, but to recognize the opportunity to do more to support advisors in their efforts to manage and grow their retirement plan business. In fact, this correlates with the findings from the Cogent Research Retirement Plan Advisor Trends study, which found that advisors rate best in class plan advisor service and support as a key driver of 401(k) plan provider consideration and plan sponsor service and support as a critical driver of satisfaction. While plan sponsors are the end client and the ultimate decision maker, plan providers would be well served to also cultivate their relationships with financial advisors, as there are clear benefits to all parties when the advisor succeeds. Methodology Data included in this research paper are derived from an online survey among a representative cross-section of 1,500 retirement plan sponsors conducted in the spring of 2013 by Cogent Research. Sample design is developed by analyzing U.S. retirement plan data from plan sponsor Form 5500 filings. Strict quotas are set and any/all necessary back-end statistical weighting is applied. Author Eloise Bond Product Director, Syndicated Research For more information contact us at: info@cogentresearch.com, or Cogent Research, INSIGHT SERIES

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