FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS 1.
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Transcript of FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS 1.
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS1
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS2
Plan sponsors using an advisor today
Totals may not add up to 100% due to multiple answer options.
Across all plan sizes.
TOP REASONS WHY:
58%
53%
48%
31%
Need help with plan investments
Want a better understanding of how well the plan is working for employees
Concerned about their fiduciary responsibilities
Have less time to devote to the plan
RESULTS AND TRENDS
UP
9 POINTS FROM 2012
84%of all
respondents
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS3
Satisfaction increasingRESULTS AND TRENDS
55%57%
60%62%
50
60
70
2008
2010
2012
2013
Plans with 25 to 2,500 participants.
While satisfaction has increased since
2008, 38% say they are less than satisfied/not satisfied with their current advisor.
Satisfaction with advisor (very satisfied/satisfied):
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS4
Opportunities remain
Plans with 25 to 2,500 participants.
10%
RESULTS AND TRENDS
4
ACTIVELY LOOKING TO SWITCH:
17% 16%14%
10%
0
10
20
20082010
2012
2013
38% of plan sponsors are less than satisfied/not satisfied with their advisor
of plan sponsors are actively looking to switch advisors
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Confidence about fiduciary responsibilities is still a concern
Plan sponsors’ overall understanding of their fiduciary responsibilities:
Plans with 25 to 2,500 participants.
RESULTS AND TRENDS
58% are certain/very certain 42% still need help
THEY UNDERSTAND:
58% Investment
options
59% Service provider selection
62% Plan
documents
61% Plan
expenses
62% Participant
communications and education
53% Testing and
reporting
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1 2 3Suggested ways to
lower costs
Suggested ways to
improve plan performance
Offered help with
administrative tasks
What caught plan sponsors’ attention
ON AVERAGE,
plan sponsors are personally solicited by an advisor FOR THEIR BUSINESS
Plans with 25 to 2,500 participants.
SELLING
4X PER YEAR
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Why plan sponsors look to switch
Need a more knowledgeable
advisor
2010: 25%2012: 30%
Plans with 25 to 2,500 participants.
TOP REASONS FOR CHANGING ADVISORS:10% of plansponsors are actively looking to change advisors
41% of
sponsors who
switch advisors also change recordkeepers
SELLING
Servicing issues with a plan provider
2010: 19%2012: 15%
Not enough advisor support
for plan servicing
2010: 5%2012: 8%
31% 28% 12%
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Sponsors define “more knowledgeable advisor”SELLING
56% Keeps us informed on regulatory changes
56% Consults with us on how to manage fiduciary responsibilities and risk
50% Consults with us on plan design
FOLLOWED BY:
44% Offers proactive suggestions for improving plan performance
44% Helps us
minimize costs
33% Offers fresh insight
on participant trends and behavior
33% Helps us select
and monitor investment options
for our plans*
Totals may not add up to 100% due to multiple answer options.* Investment professionals should consult with their firm’s legal and/or compliance professionals before selecting and monitoring plan investment options, as certain restrictions may apply.
Plan sponsors want an advisor who:
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS10
Services plan sponsors look for
Plans with 25 to 2,500 participants.* Investment professionals should consult with their firm's legal and/or compliance professionals before recommending investment option changes to a plan or plan participant, as certain restrictions may apply.
Top 3-ranked advisor services:
RETENTION
75% Providing performance
information on investment options and guidance on potential changes*
49% Providing employee
education on investment selection*
32% Analyzing participation rates,
deferral rates, investment allocations, and strategies for improving plan performance
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS11
Totals may not add up to 100% due to multiple answer options.Across all plan sizes.
Evaluating advisors
58% Investment performance
57% Costs and fees
57% Value delivered
Plan sponsors look at key areas
RETENTION
HOW FREQUENTLY
44% Plan
compliance
At least annually
Longer than a year
No fixed schedule
57%
21%
22%
36% Improvingparticipantoutcomes
37% Improving
plan measures
42% Experience
35% Fiduciary
responsibilities
31% Reputation
SIX OTHER HIGH SCORERS
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60% don’t
Demonstrate your value
Report how much time is spent working on the plan
Demonstrate how plan performance improved
Report on types of activities for the plan 69% don’t
78% don’t
What plan sponsors say advisors don’t do:
Plans with 25 to 2,500 participants.
RETENTION
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Plan sponsors define value
SEES VALUE FOR MONEY SPENT:
“Their fee … is less than the hourly rate we pay to many outside consultants and professionals … accountants, lawyers, etc.”
RETENTION
APPRECIATE TOTAL COMMITMENT:
“They have reduced our overall costs by more than $150,000 over the past two years. They are spot on … with investment options … meet with our committee quarterly … provide fiduciary training … respond quickly … keep our recordkeeper on their toes.”
Clients’ experience is no guarantee of future success and may not be representative of the experience of other clients.
– Heads of human resources: for companies with 501–1,000 plan participants
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS14
Expand your reach
* Investment professionals should consult with their firm's legal and/or compliance professionals before proceeding, as certain restrictions may apply.
81% of plan sponsors are very willing to allow the
financial advisor to solicit company employees about financial planning needs other than 401(k)s*
However,70% note that
advisors are not doing this
RETENTION
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Why have a 401(k) plan?
TOP 3 REASONS
76% Attract and retain employees
59% Ensure employees can accumulate enough for retirement
44% Provide tax benefits to employees
Across all plan sizes.
Best practices
• Highlight the plan as part of the overall pay and benefits package
• Generate an overall benefits statement at least annually to keep “retirement readiness” top of mind
• Educate all employees about the key benefits of the plan
RETIREMENT READINESS
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS19
Improving plan options
57% Improve plan coverage
48% Increase employee savings rates
36% Provide improved investment options
25% Reduce expenses
RETIREMENT READINESS
Why plan sponsors make design changes:
Plans that offer auto-enrollment:
88% of employees participate*
Totals may not add up to 100% due to multiple answer options.Plans with 25 to 2,500 participants.* Building Futures, 03/31/2013 (see final slide for additional details).
Plans that offer auto-increase:
Only 13% of enrolled employees
participate*
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS20
Totals may not add up to 100% due to multiple answer options.Plans with 25 to 2,500 participants.
Trends in plan changes
33% Auto-enrollment
29% Roth 401(k) contributions
24% Lifecycle or target-date default option
19% Auto-increase program
20% Auto-enrollment
18% Auto-increase program
15% Roth 401(k) contributions
13% Lifecycle or target-date default option
RETIREMENT READINESS
In the future: Changes in the past two years: 72%
of plans have made a plan
design change
UP 13 points
FROM 2012
55% are looking to make a plan
design change
UP 17 points
FROM 2012
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS21
Top investment menu changes
70% Replaced underperforming fund
43% Increased # of plan options
28% Added a target-date default option
Across all plan sizes.
RETIREMENT READINESS
PAST 2 YEARS
Totals may not add up to 100% due to multiple answer options.
31%Annually
28%Semiannual
32%Quarterly
9% Other
91% of plan sponsors review investmentperformance annually or more frequently
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS22
Objectives
A fiduciary must act solely in the interest of the plan participants, their beneficiaries and alternate payees to ensure that only fair and reasonable expenses are being paid
The process should be comprehensive, measurable and documented and done so with the care, skill, prudence and diligence that a prudent person familiar with such matters would exercise
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS23
Changes to Consider/ Plan Design:
Auto Enrollment @ 6%
Auto Increase @ 1% annually to a maximum of 10%
Align match to deferral rate - Consider match change to help deferral target (12% match to 10%)
Reboot all employees into age appropriate TDF’s
Analysis of Target Date Funds
Reduce the number of funds in the fund lineup
Plan design options - New Comparability Profit Sharing Plan Design; Cash Balance; Safe Harbor; Non – Qualified Plan
Review Fiduciary File - IPS
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS24
Outcomes of Different match Formulas
The Formula Likely Employee Combined Employer CostDeferal Employee/Employer (%of payroll)
DeferalStatus Quo
.50 up to 6% 6.00% 9.00% 2.10%
Option 1.25 up to 6% 6.00% 7.50% 1.35%
Option 2.25 up to 10% 10% 12.50% 2.25%
Option 3.20 up to 10% 10% 12% 1.80%
assumes a 90% participation rateassumes employees save to cap.example -opt.2; 25%x10%x90% = 2.25
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS25
Billed FeesBilled FeesInvestment Management Investment Management
FeesFeesAsset Based Fees Asset Based Fees Revenue Sharing Revenue Sharing
DisclosureDisclosure
Billed FeesBilled FeesInvestment Management Investment Management
FeesFeesAsset Based Fees Asset Based Fees Revenue Sharing Revenue Sharing
DisclosureDisclosure
Web-based ToolsWeb-based ToolsAutomated Voice Response SystemAutomated Voice Response System
Loan/Withdrawal ProcessingLoan/Withdrawal ProcessingOnline Enrollment Online Enrollment
Enrollment Materials & MeetingsEnrollment Materials & MeetingsIndividual Advice SolutionsIndividual Advice Solutions
Participant StatementsParticipant StatementsBi-lingual SupportBi-lingual SupportInvestment Philosophy Investment Philosophy
Quantitative AnalysisQuantitative AnalysisQualitative Analysis Qualitative Analysis
ScorecardScorecardSMSM Fund Ranking Fund Ranking
Plan Document, SPDPlan Document, SPDDiscrimination TestingDiscrimination Testing
5500 Filings 5500 Filings ERISA Resources ERISA Resources
Accounting Accounting Employer/Employee Reports Employer/Employee Reports Processing Payroll Deposits Processing Payroll Deposits Quality Assurance StandardsQuality Assurance Standards
RecordkeepingRecordkeeping Technology Technology ServicesServices
Compliance Compliance
Investment Investment ManagementManagement
CommunicationsCommunications
CostCost
ParticipantPlan Sponsor
The Services You Are Procuring
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS26
Shareholder Servicing: Revenue shared by the
mutual fund company with the service provider.
Asset / Wrap Fee: Additional fees layered on top of total investment fees.
12b-1: Distribution expenses paid by mutual funds from fund assets. Includes commissions
to brokers, marketing expenses and other administrative services.
Investment Management: Fees for managing investment assets. Charged as a percentage of the assets invested and deducted
from the investment return.
Sub-TA: Brokerage firms and mutual funds often contract recordkeeping
and other services related to participant shares to a third party
called a sub-transfer agent.
Investment Management Fee
12b-1 Fees
Shareholder Servicing Fees
Sub-TA (Agency Transfer Fees)
Revenue Sharing
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS27
Complete Total Cost Analysis, Including Revenue Sharing
Integrated Investment Platform Rankings for Clearer Analysis
Sample Vendor Investment Scorecards
Sample Report Excerpts
Vendor Analysis and Research
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS28
Administrative FeesAdministrative Fees
Investment FeesInvestment Fees Plan Consulting FeesPlan Consulting Fees
All costs associated
with managing the investments
Services to operate the plan: Recordkeeping, Trustee,
Compliance, Communications
How Services Are Paid For – Model 1
R6 Share Class
Advisory fees paid to a registered
investment advisor or commission paid to a broker
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Administrative FeesAdministrative Fees
Investment FeesInvestment Fees Plan Consulting FeesPlan Consulting Fees
All costs associated
with managing the investments
Advisory fees paid to a registered
investment advisor or commission paid to a broker
Services to operate the plan: Recordkeeping, Trustee,
Compliance, Communications
How Services Are Paid For – Model 2
R4 Share Class
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Administrative FeesAdministrative Fees
Investment FeesInvestment Fees Plan Consulting FeesPlan Consulting Fees
All costs associated
with managing the investments
Services to operate the plan: Recordkeeping, Trustee,
Compliance, Communications
How Services Are Paid For – Model 3
R3 Share Class
Advisory fees paid to a registered
investment advisor or commission paid to a broker
FOR INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS31
Thoughts to Consider:
Continued Provider Consolidation (Hartford)
Fee Disclosures and Regulatory Changes Cost Lots of
Money
Continued Fee Compression - advisors are keeping
track of their time on cases; flat fee
Itemization of services provided
Discussion of all Benefits (cafeteria style) – crucial
financial decision
Advisor Best Practices
Strip Out Revenue Sharing
Flat Fees – not basis point wrap
Outcomes based on quantifiable statistics – Plan Health