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Advisors serving 401(k) plans may successfully improve investment performance, only to find out that the plan sponsor is totally unsatisfied. A recent conversation I had made that painfully obvious, and a recent study by my company confirmed that such outcomes occur all too often.
At a networking meeting I attended in June for startup companies in the Boston area, the newly hired HR director of a 70-employee biotech company told me about her role as plan sponsor for its 401(k) plan. While she was an experienced investor, she had never managed a retirement plan before and was very concerned that recently laid-off employees were considering filing fiduciary negligence lawsuits against the plan.
This was a typical, boilerplate small-business plan sold by a financial advisor at a bank broker-dealer. Seeking assistance to help her understand her ERISA fiduciary obligations, the HR director called the advisor and was immediately shuffled off to the company’s centralized retirement call center. There she was passed along a chain of representatives until she was finally told that they could not help her, advising her to contact an ERISA attorney instead. A week later, having apparently forgotten her previous call, the advisor called to discuss adding new funds to the plan.
Shortly thereafter, the HR director made searching for a new plan provider one of her highest priorities.
Similar situations are all too common in the small-plan space, and they are a chief source of client dissatisfaction, according to findings from The Briskin Consulting Study of Small-Retirement-Plan Sponsors. Analyzing the results from an online survey of 112 small-plan sponsors conducted in the first quarter of 2010, the study reveals the issues that keep plan sponsors up at night and the reasons why they select, stick with, and switch providers.
Product performance isn’t a priority
Advisors would like to think that investment performance sells plans. This is not the case.
While 77% of respondents were dissatisfied with returns from the investment options in their plans – who wouldn’t be, in this market? – only 48% considered underperformance to be a “major concern.” Compare this to the 74% who were very worried about meeting their fiduciary obligations and the 87% who were struggling to keep up with ever-changing Department of Labor regulations.
Value-added advice: An increasingly rare commodity
Plan sponsors are looking for advice and assistance that goes beyond the usual bread-and-butter issues of operations and plan compliance. Most were quite happy with the help they were receiving in those particular areas, and were satisfied with the quality and depth of information on the plan’s investment options. But nearly two-thirds felt that they were not receiving adequate advice on fiduciary-related issues, nearly half wanted better regulatory updates, and nearly a third felt that the quality of participant education and advice left a lot to be desired.
