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Fred Barstein | Sep 26, 2022
When I heard that the recent Fidelity Plan Sponsor Attitudes Survey indicated that 47% of plans are actively looking to switch their retirement plan advisor or consultant, up from 34% last year, I was skeptical about how many will follow through. Just as I was skeptical that 48% of plans would change their record-keeper.
But I became less skeptical when I learned that 35% of plans indicated that they actually did switch their advisor. I had questioned whether plans would be that proactive or have the resources. So what is going on that would cause so many 401(k) and 403(b) plan sponsors to dramatically increase activity when as recently as two years ago just 17% indicated that they were searching for a new advisor?
There are many circumstantial and ancillary reasons, some found in the Fidelity research and others because of external factors. Liz Pathe, head of DCIO sales at Fidelity, noted: “Drivers of advisor value are increasingly employee-focused, so if advisors work with sponsors to help improve employee outcomes, provide financial advice and guidance to participants, and improve performance on plan investments, they can better demonstrate their value.”
To say that the days of the Triple F advisor are numbered may be a colossal understatement.
But more fundamental changes are afoot. Plan sponsors are waking up—they have gone from being unconsciously incompetent to consciously incompetent, well on their way to becoming consciously competent as retirement benefits become increasingly a critical weapon in the ongoing war for talent.
Increased litigation, which is sure to target smaller plans and advisors, along with pent-up demand from the pandemic, will keep advisor turnover at high levels. Continuing industry consolidation for record-keepers and retirement plan advisors, with plan sponsors expecting their RPA to help with the inevitable service issues during the transition, gives plans reasons to look for more knowledgeable advisors.
Digging deeper into the Fidelity research, though advisor satisfaction is at all-time highs, plan sponsors are switching because of the lack of advisor experience, looking for more help with employee education. Almost 60% of plans are implementing a financial wellness program, which advisors must oversee if not offer. Solicitation by advisors doubled in one year, with the highest among plans with $50 million to $240 million.
Practically speaking, Ariana Amplo, founder of RFP service InHub, said that many procurement departments are requiring their retirement committees to conduct an advisor RFP, while new members are not comfortable joining unless proper due diligence is conducted.
The most important decision a plan can make is selecting the right advisor to help with overseeing the record-keeper, investments and other providers, as well as plan design and working with employees.
While everyone concedes that periodic investment and record-keeper due diligence are required with a provider RFP every three to five years, there is less consensus among advisors about the need to conduct an RFP on themselves by an independent third party. That position is not just indefensible, it is no longer viable. Savvy RPAs will get ahead of the trend and be proactive with clients and prospects alike.
The business world dramatically changed post pandemic, and the RPA industry is no exception. RPAs must lean into the change or face imminent danger of being replaced by those that do. And, if you do not believe me, just ask the 35% of the 1,285 DC plans in the Fidelity survey that replaced their advisor last year and the 47% who are actively looking to switch this year.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.
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