by Jeffrey Briskin
President, Briskin Consulting
At a recent Boston-area networking event, I was speaking to the newly hired HR Director for a startup biotech company. As her company's designated plan sponsor, she was very interested in the findings of the Briskin Consulting Study of Small Retirement Plan Sponsors, particularly those that revealed plan sponsors' concerns about meeting their fiduciary responsibilities.
She related a story from her own experience. Never having served as a plan sponsor before, she called the financial advisor for a large bank broker-dealer that had originally sold the plan, seeking information on ERISA's latest guidelines on investment fee disclosures. The advisor quickly transferred her to the company's 'retirement knowledge center,' where she spent an hour being bounced from rep to rep until finally she was told that she should speak to an ERISA attorney. After this episode, she vowed to begin a search for a new provider as soon as possible.
Unfortunately, her situation is all-too common among many small-plan sponsors. While larger plans benefit from dedicated client service teams and customized investment policy statements and investment lineups, smaller companies are often given boilerplate plans with fixed fund lineups and 'Rep of the Day' client service. Too often, the calls they do receive are sales pitches for new funds, rather than requests to be of service.
Many plan providers still think investment education and plan compliance are the biggest issues of concern to plan sponsors. But this is not necessarily so. According to the Briskin Consulting study, plan sponsors consider themselves to be reasonably knowledgeable about investments, retirement planning, and the "bread and butter" aspects of plan management such as the plan's features and non-discrmination testing issues.
But it's what plan sponsors don't know that worries them. Three out of four respondents confessed that they lacked significant knowledge of ERISA fiduciary requirements, and little over half felt that they had adequate knowledge of the administrative and investment fees associated with their plan.
Considering that 59% of respondents had less than five years of experience serving as a plan sponsor for any company, it's understandable that respondents wouldn't consider themselves experts on these complex issues. If they do gain knowledge in these areas, it's probably through self-education, as plan sponsors have low opinions about the quality and quantity of fiduciary advice they receive from plan providers and advisors.
As expected, providers scored highly when it came to providing information and advice on investment options and on non-discrimination testing issues. But plan providers fell short on providing clear and concise information on fees and updates on ever-evolving ERISA and Department of Labor regulations. Indeed, more than one respondent wrote that their provider's idea of providing regulatory news was to send them directly to the Department of Labor web site, leaving them to fend for themselves in a sea of bureaucrat-ese.
Why is this dearth of fiduciary and regulatory education and assistance important? Because it leads to plan attrition. Roughly 92% of respondents cited poor client service as a key reason for initiating a search for a new provider and nearly 60% cited poor fiduciary and regulatory guidance. Compare this to the 49% who felt that poor investment performance was a critical factor for starting a search. Plan sponsors have become used to variability in investment results; the market meltdown following the financial crisis levelled the investment playing field, making performance and benchmarking less of an issue.
Instead, plan sponsors are hearing about participant lawsuits and are worried that their company may be next. They're looking for guidance and assistance to help them understand what it means to be a fiduciary in a volatile market and a regulatory environment that is likely to become more complex and demanding. If they can't get this information from their plan providers, who will they turn to? Chances are, a provider who is willing to fill in this information gap. Is your firm up to the challenge of retaining--or poaching--these plans?
You may download the full Briskin Consulting Study of Small-Retirement-Plan Sponsors for free. Jeff Briskin is available to present additional findings to your organization in person or via the web. Contact him at jeff@jbriskinconsulting.com for information or to learn more about his new Fiduciary Insights plan sponsor education series.
