As defined contribution plan sponsors evolve from knowingly incompetent to knowingly competent, all eyes turn to their retirement plan advisor. According to Fidelity 2023 Plan Sponsor Attitudes Study covering 1,351 plans with 83% between $3 million and $250 million in plan assets, the main theme is, “Increasing Complexity Creates Opportunities for Greater Advisor Influence.”
But there's a serious disconnect between what plan sponsors want and how advisers value themselves. And as plan fees drop, potentially reaching zerothere is more pressure on advisors to either sell proprietary services or deploy them for which they receive an additional fee rather than act as an independent third party being compensated to evaluate, recommend and monitor all products , services and other providers as a co-fiduciary.
This existential question is at the heart of current and past iterations of the DOL's fiduciary rule and while RIA industry expert Michael Kitces' recommendation is to only label advisors who sell a product as “salespeople.” a solution echoed by some ERISA legal experts, does it make sense for an advisor to wear two hats – salesperson and fiduciary?
So, as plan sponsors wake up demanding more from their advisor than Triple Fs, realizing the opportunities that the convergence of wealth, retirement and benefits offers them and their employees, they take a more critical look at their advisor, which which is likely to cause massive change. Fidelity reports that 22% of plans were actively looking for a new advisor in 2023 with 37% making a change in the previous 12 months.
Advisors have and will continue to play a critical role for plan sponsors—41%, according to Fidelity, want them to act as objective third parties, along with improving participant outcomes and helping them save time. Meanwhile, advisors rate themselves based on the number of activities, participation and contribution percentages as well as reducing provider fees and investments. What a monumental breakup!
Record keeping and investment fees have decreased, while service and quality have increased due to the tireless efforts of RPAs. But now the focus turns to the role of advisors and whether a plan needs to make a difference or at least perform the kind of due diligence that advisors have been telling clients and prospects they need to do about their providers and funds. And when registrars sell, advisors jump in, providing due diligence services to the provider's outgoing clients—isn't the same true for acquired RPA firms?
While benchmarking, RFIs, and RFPs are all valid, they serve different functions. Benchmarking is backward-looking and can be manipulated based on the data set used, especially if a provider or advisor is conducting the review themselves. RFPs provide a more accurate picture of current market rates, while also revealing what the plan and participants need and want. RFIs also provide a more current view, but it is sketchy with limited interaction.
So, with all due respect to Fidelity's survey, the rate of advisor turnover still appears to be much lower, largely due to “relationship coma” as well as the power of inertia and limited independent third parties to help. in sponsor planning. The “brother-in-law/golf buddy/financial advisor” relationship still holds sway as Fidelity reports that 29% of plans switch advisors because the advisor had an affair with a committee member.
Advisers who stay ahead of the trend not only advocate that prospects conduct proper due diligence or seek an advisor, which will exponentially speed up the process, but also advocate for their clients to do the same, will are seen much more favorably than those who resist. . Because if they don't, someone else will, which isn't just possible—it's inevitable.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.