When an Adviser Is Involved, Plan Sponsors Learn More

Compared with other types of financial advisers, fee-only registered investment advisers (RIAs) offer more investment advice to participants, more support and more education to plan fiduciaries, according to TD Ameritrade Institutional’s new 2015 Plan Sponsor Sentiment Survey.

The survey found that independent RIAs, unaffiliated with a broker/dealer (B/D), provide greater fiduciary support to retirement plan sponsors at roughly two times the rate of other advisers or plan administrators and are twice as likely to offer educational services to plan sponsors.

One startling finding is how lacking plan sponsors are in their awareness of the fee disclosure regulations from the Department of Labor (DOL), says John Newman, managing director, retirement plan solutions, TD Ameritrade Institutional. “I found it a little surprising,” he tells PLANADVISER, emphasizing that the regulations, which were finalized in February 2012, are nearly four years old.

A substantial number of plans—having an average size of about $50 million in assets—have committee members and a human resources (HR) staff who could help explain the regulations, yet plan sponsors still were unaware of the nuances of fee disclosures. “We found that 30% had done nothing about the regulations—a fairly healthy percentage,” Newman says. TD Ameritrade expected to see high awareness and action related to the disclosures, especially given how critical they are to plan outcomes.

Newman says the survey findings show that 62% of plan sponsors do not fully understand the implications of the fee disclosure rules. Plan sponsors that use RIAs receive updates and education about fee disclosure from their advisers at twice the rate of those that do not use RIAs. And, of those plan sponsors that don’t use an RIA, 30% say they have received no communication on the requirements.

The big takeaway, Newman says, is that plan sponsors do want to evaluate their plans. “The survey delves more deeply into components they want to focus on,” he says, mainly plan fees and investment options. Plan sponsors might view these as two separate items, Newman says, but they are quite interdependent.

“Once you get out of micro-size plans and get to the $50 million plan size, the largest expense is the investment options,” Newman says. The reason: Larger plans pay a decreasing proportion of fees in relation to those costs. “Once you become a plan of some significance, your fees are driven by your investment options.”

Plan outcomes—how much employees contribute and when they start—are directly tied to these investment costs, Newman points out. As a plan’s balance mounts, it can actually create a bit of drag on the plan. “Plan sponsors seem to be sniffing around these various components,” Newman says, “but they are not putting them together in a simple and distinct way.”

Regulatory changes mean that RIAs are poised to shine for plan sponsors, Newman says, noting that RIAs are hardwired to deliver fiduciary support and investment advice in a way that other providers are not.

“A lot is changing for employer-sponsored retirement plans, so it’s not surprising that plan sponsors need more guidance and services for themselves and for their participants,” he says.

Advisers need to get the word out, TD Ameritrade says.

“RIAs need to be more of a known entity to plan sponsors,” Newman says, “and they need to broadcast the benefits to plan sponsors of having this working relationship.”

TD Ameritrade Institutional’s 2015 Plan Sponsor Sentiment Survey was conducted by phone, questioning 242 retirement plan sponsors between September 28 and October 6. Survey respondents had at least 25 employees from the public and private sectors and self-identified as the primary or shared decisionmaker for their organization’s retirement plan.