DC Plans Shifting From One-Size-Fits-All to One-On-One Retirement Advice

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One-on-One Retirement Advice

A growing number of plan sponsors report they are focusing more on helping employees adequately plan and prepare for a secure retirement, a welcome development that can help combat the lack of retirement readiness among 401(k) participants.

This is great news considering:

  • Auto-enrollment adoption has stayed flat for several years
  • Many plan sponsors are leaving auto-features out of the plan
  • The majority of plans (54%) offer only one source of investment advice

Up until now, one-size-fits-all 401(k) retirement plans have been the main strategy. However, it appears that 401(k) plan sponsors are starting to reconsider this approach. This year, Cogent has found evidence of increasing interest among plan sponsors in adding new forms of advice, as more than one-quarter (27%) are likely to start offering access to an advisor, and one in four (25%) is likely to give participants access to one-on-one advice from a third party. Nearly as many (23%) are likely to incorporate online investment models provided by the plan provider. Interest in offering new modes of advice are stronger among the Mid-sized, Large and Mega plan segments, in-line with a general trend in the 401(k) market where larger plan sponsors tend to be the early adopters of new features that ultimately increase in popularity across all plan size segments. Continue reading

DC Investment Managers Fighting to Survive

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Fighting to Survive

It’s tough being a DC investment manager these days. Plan sponsors are offering fewer investment options within their 401(k) plans than in the past—an average of 13 today compared with upwards of 20 in previous years—and consequently are reducing the number of investment managers they include in their plan lineups all in an effort to
reduce plan costs. Brand awareness is down significantly for many DC investment managers this year, suggesting that plan sponsors are less eager to add new managers to their lineups than they have been in the past. As a result, consideration scores are lower for several investment managers this year.

Plan sponsors’ heightened focus on fees is even more evident in the reasons they cite for dropping an investment manager. For the first time in our survey, the desire to cut fees and expenses outranks investment underperformance as the most common reason plan sponsors would end a relationship with an investment manager. In fact, more than one-third (34%) of Mega plan sponsors, those with at least $500 million in plan assets, cite the need to reduce fees/expenses as a reason for dropping an investment manager. Continue reading

Getting on DC Advisors’ Short List

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Getting on the Short List

DC advisors maintain a limited set of go-to providers, as they continue to recommend just 2.4 plan providers on average for prospective clients to consider. Remarkably, nearly one-third of DC advisors (32%) recommend only one plan provider to prospective clients, creating a daunting challenge for DC recordkeepers that are striving to gain advisors’ attention. Moreover, the implications of securing a spot on DC advisors’ consideration sets can be huge—as these advisors work with an average of just 2.7 plan providers for all of their DC business.

When asked about the specific reasons why they recommend particular firms, cost is the main reason cited by Established DC advisors (those managing $10 million or more in DC AUM). Meanwhile, Emerging DC advisors managing less than $10 million in DC AUM tend to gravitate toward firms they are already familiar with, citing existing relationships as their primary reason for recommending a specific provider. Continue reading

What Are Plan Sponsors Looking for in a New Provider?

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iStock_000006364141XSmallLast week, I discussed the percentage of plan sponsors who are planning to reevaluate their provider as well as the proportion of those looking to make a switch in their plan providers in the coming year.  Given the winds of potential change in the air, plan providers must ready themselves for review and be prepared to defend the areas that top the list of criteria used by plan sponsors during the evaluation process.  But what are these areas?

To determine which of the 16 specific brand imagery attributes have the greatest impact on the provider consideration, we use a Shapley-Value analysis which identifies the overall impact of each factor on the selection process.  Furthermore, it can gauge whether the influence is negative, where it acts like a barrier if a plan provider does not deliver on a given factor, or the influence is positive, meaning that the provider is differentiating itself if the plan sponsor is satisfied.  The absolute values of the detractor and enhancer percentages are combined to rank the top drivers. Continue reading

Plan Sponsors Looking to Switch Providers in Coming Year

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iStock_000006699283XSmallThe DC recordkeeping market is becoming increasingly commoditized, with the “best” providers being those that go unnoticed because nothing glaringly obvious goes wrong. In fact, several notable firms have dropped out of the business in recent years, choosing to focus their efforts on the more lucrative asset management space. However, the firms that remain still have the potential to grow their assets under administration. To uncover opportunities for growth, it is important to not only assess the current landscape for plan sponsors but also to look ahead to the coming year.

When plan sponsors are asked about their primary focus for the coming year, nearly half (49%) cite ensuring the plan is in compliance with regulations. Close behind is reducing plan costs and reevaluating the investment menu, at 47% and 45%, respectively. Most notable, however, is that 1 in 4 plan sponsors intend to reevaluate his or her recordkeeper, up significantly from 18% in the prior year. Continue reading

Sponsors Signal More Changes in the 401(k) Market

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Keep walking New York traffic sign with illuminated and blurred background

Results from the Retirement Planscape® study indicate signs of significant turnover looming on the horizon in the 401(k) market. In what may be a warning for incumbent providers, one-quarter (25%) of plan sponsors intend to reevaluate their plan provider in the coming year, up from 18% in 2014. In addition, nearly one-third (31%) say they are likely to initiate a formal review of their 401(k) plan over the next 12 months.

Amid this time of change in the 401(k) market, plan providers cannot afford to become complacent. To ready themselves for review, plan providers will need to be prepared to defend the quality and range of investment options, plan administration fees and overall service quality for participants, as these areas top the list of criteria used by plan sponsors during the evaluation process. Continue reading

Diverse DC Menus Don’t Guarantee Success

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DC MenusThe vast majority of plan sponsors believe it’s important to offer a wide variety of investment options to their plan participants—and with the average DC plan offering 15 to 20 different choices—they appear to be achieving that goal. However, according to the recently released DC Investment Manager Brandscape™ study, having a diverse menu in and of itself isn’t enough to generate optimal retirement readiness among plan participants.

Like the adage, you can lead a horse to water but you can’t make him drink. While most plan sponsors are offering a wide variety of options, it doesn’t necessarily mean that participants will choose appropriately and be adequately prepared for retirement. Continue reading

Plan Sponsors Turn Over a New Leaf

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Retirement Planscape_Blog Call OutAfter years of apparent stagnation, the winds of change are evident in the 401(k) marketplace. No longer content with the status quo, plan sponsors are actively evaluating all aspects of their current plans, from fees to investment options, to participant education, guidance and advice. And they are involving a multitude of resources in their evaluation process, including financial advisors, external consultants, third-party administrators, peers and the providers themselves. 

Even more significant, many plan sponsors intend to conduct a formal plan review in the upcoming year, which has the potential to put a sizable portion of current relationships out to bid. Correspondingly, plan sponsors are open to considering many more providers this year than observed in the past, signaling the possibility of substantial turnover in the marketplace across all plan size segments as well as opportunity for record keeping firms seeking more than just moderate organic growth.  Continue reading

Meeting the Challenges Behind “More, Better, Cheaper!”

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When you ask customers what they want from a service provider, the responses can be somewhat predictable. Regardless of the industry, “more, better, cheaper!” is the quintessential customer rallying cry. Marketers’ challenge is to take customers’ unfettered wish lists and bring them back down to Earth, honing in on the services customers want most and the best strategies for delivering those services without sacrificing, and ideally strengthening, the business’s bottom line.

This challenge was never more evident than in a series of recent focus groups with DC plan sponsors. Plan providers face a monumental task in delivering a service with multiple stakeholders, many of whom do not fully grasp the features of the service they are currently receiving, so identifying the features that are most likely to improve their satisfaction and the most prudent method for providing those services is a significant endeavor. Continue reading

Q & A from Gaining a Competitive Edge in the DCIO Market

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Cogent Reports held a live webinar, Gaining a Competitive Edge in the DCIO Market, on June 12, 2014 to highlight some of the findings from our recently-released DC Investment Manager BrandscapeTM report. We achieved record-breaking attendance and were asked many insightful questions from viewers which we feel are worthy of sharing:

1.iStock_000004576001Small Has “open architecture” really had an impact on investment only managers’ ability to crack into a market dominated by a few big players?
While we do still see the DC investment market dominated by full-service record-keepers that also offer record-keeping, we certainly see an opportunity for “pure” DCIO providers – particularly as plan sponsors across all plan size segments are increasing the number of investment managers they include in their investment menus.

Continue reading