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Plan sponsors can be fertile territory for advisors looking to boost their businesses and broaden their client reaches and the definition of “plan sponsor” explains why that’s the case.
“A plan sponsor is a designated party—usually a company or employer—that sets up a healthcare or retirement plan, such as a 401(k), for the benefit of the organization's employees. The responsibilities of the plan sponsor include determining membership parameters, investment choices, and in some cases, providing contribution payments in the form of cash and/or stock,” according to Investopedia.
Owing to the focus on retirement plans, plans sponsors can and should lean on registered investment advisors and it appears they’re doing just that. Fidelity’s 15th annual Plan Sponsor Attitudes Study confirms as much.
The study indicates that 90% of plan sponsors work with advisors and 81% describe those relationships as highly satisfactory. However, there’s more to the story and it’s further confirmation that advisors should consider increasing their exposure to plan sponsors.
Plan Sponsors Equal Opportunity for Advisors
This isn’t an endorsement or a criticism of the products, but target date funds (TDFs) are among the reasons plans sponsors engage advisors. TDFs are popular in employer-sponsored retirement plans because they do some heavy lifting for end users, particularly those that want the benefit of financial market participation without having to tend to portfolios on a daily basis.
Additionally, target date funds typically offer a mix of equities and fixed income, favorable fees and many of these products are issued by familiar, large fund sponsors, presenting investors with some level of comfort. TDFs are just one example of the demands and expectations plan sponsors have for advisors. Health savings accounts (HSAs) are increasingly important to plan sponsors, too.
“Plan sponsors are only expecting more from their advisors, and we certainly don’t see that trend slowing,” notes Dalton Gustafson, head of Intermediary Investment Client Group at Fidelity Institutional. In fact, our study showed that sponsors are meeting with prospective advisors to merely remain informed on other services being offered, signaling the need for advisors to not only be knowledgeable, but understand how each sponsor perceives value and taking steps to tailor their approach.”
Meeting and exceeding plan sponsors’ expectations can pay dividends for advisors in another way. Eighty-one percent of sponsors polled by Fidelity said employees should be allowed to work with the advisors outside of the sponsored plan. The study indicates workers would like that option, too.
“However, despite the plan sponsor’s optimistic view, the survey revealed only 50% of employees are retiring on schedule (defined as age 67), indicating significant challenges in terms of retirement readiness. Twenty-three percent of employees retire later than expected,” observes Fidelity.
Advisors Contributing to Plan Design
Advisors are proving invaluable to plan sponsors on another front: plan design. That concept is taking on added importance at a time when TDFs are popular, but not suitable for all workers and as there’s momentum for adjusting the 60/40 portfolio.
Recognizing that many employees are facing retirement shortfalls – a situation exacerbated by high interest rates and persistent inflation – advisors can help plan sponsors make significant progress when it comes to plan design.
“Plan sponsors continue to evolve their plans alongside their advisors and/or consultants to ensure they’re setting employees on a positive path to retirement savings. When asked about plan design changes made in the past 12 months, sponsors reported increasing the matching contribution (37%) as the top change,” concludes Fidelity.
Related: Young Workers Show Commitment to Retirement Savings