Advisors to Recordkeepers: ‘Stay in Your Lane’

August 2024

According to a 2021 LIMRA survey of plan sponsors, almost 9 in 10 defined contribution (DC) plans rely on a financial advisor (FA) to help them administer their plans. However, advisors who sell and service DC plans are somewhat unicorns in the advisor universe. While the Bureau for Labor Statistics estimates that there are more than 270,000 FAs, the industry estimates that just 5 to 6 percent sell or service DC plans.

And of these, most only dabble in DC, selling a few plans mainly to keep their wealth management clients, who may happen to own or have interest in a small business, happy. Even fewer truly specialize in DC plans, building their practices around selling plans and offering fiduciary, design, investment and other plan management services to plan sponsors.

Whatever the degree of specialization, finding and appealing to advisors who sell DC — mostly 401(k) — plans can be a challenge for recordkeepers. Understanding these advisors and crafting product, service and value proposition offerings to appeal to them are critical to plan sales in an increasingly commoditized industry.

Recordkeepers’ Role

Most advisors have only a handful of recordkeepers, generally fewer than five, with whom they regularly place business. When it comes to servicing plan participants, they expect a hands-off approach from those recordkeepers:

• 76 percent agree that recordkeepers should not market products in addition to the retirement DC plan
• 78 percent agree that recordkeepers should not pursue rollovers
• 67 percent agree that recordkeepers are incapable of providing detailed planning
• 47 percent disagree that recordkeepers should offer financial planning to all participants; just 21 percent agree, and 31 percent are neutral

Sixty-nine percent say what they do want from recordkeepers is data … so they can use it to segment the participant base and choose which participants to help, with just 9 percent disagreeing they want recordkeeper data.

Regarding helping participants with their specific financial wellness needs, the glass is half full for recordkeepers.

Advisors are far from unilaterally complimentary about how even their chosen recordkeepers service plan participants.

When assessing the recordkeepers with whom they work most frequently, advisors give highest marks for asset allocation help within the plan itself (Figure 1). This may be faint praise as the mean score is 6.4 on a scale, which tops out at 10 for “excellent.” They rate recordkeepers a distant second at 5.8 for “preparing participants for retirement” and third at 5.4 for “improving financial wellness,” while “retirement income planning” garners a 5.3 assessment.

“Setting financial goals” rounds out the top five with a 5.1 and represents the last topic to beat the midpoint of “5” on the scale, leaving nine additional listed topics to fall below the midpoint.

While advisors are guardedly positive about recordkeeper ability to improve participants’ financial wellness (5.4), they are less so about some of the functions considered essential to wellness, such as emergency savings, education planning and funding, and home purchases. Wellness/planning topics that could be considered more applicable to higher income and net worth participants — such as tax and estate planning — also rate low in advisors’ estimations.

Across the board — in a listing of 12 plan and financial wellness categories — most advisors feel that they, themselves, are best suited to provide guidance to plan participants.

Still, about half feel that recordkeepers are a go-to resource for participants seeking help and information about financial wellness — but advisors favorable to recordkeepers in this regard jump to 70 percent for those advisors who specialize in DC plans.

Using Recordkeeper Services       

Low opinion of recordkeeper capabilities aside, advisors are willing to make use of most recordkeeper tools and services for participants (Figure 2).

They are most likely to use services relating to the plan itself — educational content, tools and calculators. Despite a clear preference to be the face of financial wellness to plan participants, advisors are willing to use recordkeeper-originated financial wellness tools and educational content. DC specialist advisors are more likely to report that they use most recordkeeper services than are advisors, who are less engaged in the plans of their practice(s).

Sixty-seven percent of advisors feel that recordkeepers are incapable of providing detailed planning to plan participants.

When asked where they prefer recordkeepers invest more in participant capabilities, advisors “wish” that recordkeepers make a greater investment in providing data-driven insights about the participants in the plans they manage. Increasing investment in group education meeting capabilities is also a top wish list item. Data insights tops the list for specialist advisors, while education meetings are top for occasional and hybrid advisors.

Working With Advisors

The learning here for providers — from recordkeepers to third-party administrators to asset managers — dealing with advisors is to recognize and support advisors’ own desires to be the face of the plan and ancillary services.

Despite lackadaisical or even low advisor assessment of recordkeeper capabilities in supporting financial wellness for participants, about half still feel that recordkeepers are a go-to resource for participants seeking help and information about financial wellness. Advisors favorable to recordkeepers in this regard jump to 70 percent for those who specialize in DC plans.

Robust tools, communication and education can all be positioned to feed into advisors’ own value propositions, especially with those specialist advisors who willingly rely on recordkeeper capabilities and services. There may be a more active role for service advisors to play in directly helping participants in plans managed by occasional advisors, who are more preoccupied with financial planning and wealth management efforts with business owners, high net worth participants and retail clients.

Once in a plan, our research indicates that recordkeepers are influential with plan sponsors and, of course, are usually the “face” of the interactive platform participants use to access their accounts and ancillary services.

Advisors may be reluctant to cede their own role and responsibility with participants overall, but do recognize the role that recordkeepers play in plan management — and that recordkeepers’ capabilities can play in helping them service plan participants.