For the First Time, Fiduciary Responsibility Tops Plan Sponsors' Reasons for Hiring Advisors

Seventh Annual Fidelity® Plan Sponsor Attitudes Study Finds 38 Percent of Plan Sponsors Surveyed are Concerned About Their Fiduciary Duties, An Increase of 14 Percent from Last Year

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BOSTON — Fidelity Investments® today announced the results of its seventh annual Plan Sponsor Attitudes study, which revealed that – for the first time – fiduciary responsibility is the top reason plan sponsors start using retirement advisors. Thirty-eight percent of the plan sponsors surveyed are concerned about their fiduciary duty, a significant increase from 24 percent last year. Sixty-nine percent – a new high – ranked an advisor's willingness to take on a formal fiduciary role as important. The study surveyed employers who have set up retirement plans that use a wide variety of recordkeepers and range in size from 25 to 10,000 participants.1

The research also found that a record 72 percent of plan sponsors in the study are satisfied with their advisors, with two-thirds saying they get good value from their advisors. Despite this, the percentage of respondents actively looking to change their advisors reached a new high of 23 percent, with the most common reason being the need for a more knowledgeable advisor who is an expert in a variety of areas, including how to best manage fiduciary responsibilities. Plan sponsors surveyed are also looking for retirement advisors who can consult on plan design and improving plan performance, with an all-time high of 86 percent having made plan design changes in the last two years, and a similar 87 percent having made investment menu changes in the last two years.

"Advisors who specialize in the retirement plan market are delivering increasingly greater value, offering services that allow them to operate as a fiduciary, as well as building scalable ways to manage investment menus and serve their plan sponsor clients," said Jordan Burgess, head of specialist field sales overseeing defined contribution investment only (DCIO) sales at Fidelity Institutional Asset Management. "While plan sponsors are more satisfied than ever, they are also starting to expect more from their advisors, with many of them intensifying their search for even more knowledgeable advisors."

"The Department of Labor's rule on investment advice gives specialist plan advisors the opportunity to raise the game," added Burgess. "If they are successful at demonstrating their knowledge, these plan advisors could potentially expand their share of the market and become even more competitive."

Find Opportunities to Demonstrate Your Knowledge

Despite the progress made in areas such as satisfaction with advisors, an all-time high of 88 percent of the plan sponsors surveyed said they have participants who delay retirement due to a lack of savings. To help plan participants get on track in terms of reaching their retirement goals, and to stay competitive against their peers, plan advisors should share their knowledge across a variety of areas, beyond their fiduciary responsibilities. Plan sponsors who took part in the study are looking for these skills among advisors:

  1. Providing guidance on plan design changes. Plan sponsors are focused on driving participation among their employees, with a record number of respondents (61 percent) citing this as a reason for design changes. More than three-quarters (76 percent) of plan sponsors surveyed are planning future design changes – the highest percentage ever. While retirement advisors and consultants are considered the primary driver of plan design changes, recordkeeper influence is expanding, with more plan sponsors saying that advisors and recordkeepers have equal impact on decisions. Advisors should stay aware of what recordkeepers can offer, including simplifying plan administration, and they should ensure that their clients understand how a strong partnership that includes the plan sponsor, the recordkeeper and the advisor can benefit plan participants.
  2. Providing guidance on investment menu changes. Plan sponsors are just as active with menu changes as they are with plan design changes, with 87 percent of respondents having made an investment menu change in the past two years – a remarkable increase of 52 percent since Fidelity began asking this question in 2012. Again, plan sponsors in the survey rely most heavily on advisors for investment menu selection, and advisors should understand how their clients are measuring investment performance: relative to benchmark (54 percent); relative to investment category (53 percent); alignment with investment strategy (42 percent); and alignment with stated plan risk parameters (40 percent).
  3. Helping set clear savings and retirement income goals. Even though a record number of the plan sponsors surveyed are concerned about their participants' lack of savings, 68 percent of them don't define clear savings or retirement income goals. Plan advisors can help their clients redefine success measures, encouraging them to set a plan goal for a retirement income replacement rate, establishing a plan design that aligns with this goal, then monitoring participants' collective progress toward that goal.

How to Structure Plans for Retirement Income

Fidelity believes that a retirement income replacement rate goal from assets should be about 45 percent of participants' final salary,2 if they don't have a pension. For many participants, this means they may need to accumulate 10 times their final salary by their full retirement age of 67.3 Saving at least 15 percent of their salary, including an employer match, over the course of their career is one path to reach that goal.4

There is no one-size-fits-all plan design for all plan sponsors, but advisors can recommend several plan design tools and work with recordkeepers to help participants save. Examples of steps advisors can encourage sponsors to take include:

  • Save long enough: Start early with auto enrollment for all employees.
  • Improve savings rates: One of the ways plan sponsors can help their participants reach a savings rate of at least 15 percent is to adopt a minimum 6 percent auto-enrollment default deferral rate or higher. This could be combined with an automatic one percent annual deferral increase up to 15 percent, and strategic match of 3 percent to encourage deferrals.5, 6.
  • Align investment menu options with plan goals: Participants may need more exposure to equities for longer than expected. Advisors should talk to clients about a target-date option to assist with age-appropriate asset allocation. For example, the Fidelity target-date glide path assumes a 4.5 percent real rate of return (net of inflation.).
  • Set a goal and measure progress: Improve plan metrics against a plan retirement income goal and participant progress on overall savings rates.

Additional information on the survey as well as resources and tools – including fund analytics and details on investment options – can be found at institutional.fidelity.com/attitudes (for defined contribution professionals only.)

Fidelity Institutional Asset Management, Defined Contribution Investment Only (DCIO)

Fidelity Institutional Asset Management is a leading provider of investment management and retirement services to defined contribution professionals nationwide, supporting advisors, recordkeepers, third-party administrators and plan sponsors in a collective effort to help participants achieve better retirement outcomes. As a retirement leader, Fidelity has deep knowledge of plans and participant behaviors. The firm combines this knowledge with a legacy of asset management —62 percent of Fidelity's $2.1 trillion in managed assets are retirement assets as of June 2016— to become a key manager in the investment-only arena with more than $76 billion in total DCIO assets.

Plan Sponsor Attitudes Survey: Methodology

The 2016 Plan Sponsor Attitudes Survey was conducted in collaboration with E-rewards, an independent market research company, via an online survey of 976 plan sponsors on behalf of Fidelity in February 2016. Respondents were identified as the primary person responsible for managing their organization’s 401(k) plan (ranging in size between 25 and 10,000 participants), and the survey focused on those plan sponsors (849, or approximately 87 percent) using the services of a financial advisor or plan consultant. Fidelity Investments was not identified as the survey sponsor. The experiences of the plan sponsors who responded to the February 2016 survey may not be representative of those other plan sponsors who use the services of an advisor. Previous Fidelity surveys were conducted in 2008, 2010, 2012, 2013, 2014 and 2015.

About Fidelity Investments

Fidelity's goal is to make financial expertise broadly accessible and effective in helping people live the lives they want. With assets under administration of $5.4 trillion, including managed assets of $2.1 trillion as of June 30, 2016, we focus on meeting the unique needs of a diverse set of customers: helping more than 25 million people invest their own life savings, nearly 20,000 businesses manage employee benefit programs, as well as providing nearly 10,000 advisory firms with investment and technology solutions to invest their own clients' money. Privately held for nearly 70 years, Fidelity employs 45,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

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