Harried 401(k) Sponsors Put Their Faith in Advisors
The ever-harsher spotlight on 401(k) plan fees may benefit advisors as more plan sponsors hire them to (let’s not mince words) cover their behinds.
First came April’s infamous Frontline episode, which skewered the investment management industry and warned that high fees, especially on managed mutual funds, are threatening Americans’ retirement prospects. Then Yale University law professor Ian Ayres sent letters to 6,000 401(k) plan sponsors last month, telling them they’re overpaying for investment management. According to RIABiz, the letters linked to a white paper that Ayres co-authored, “Measuring Fiduciary and Investor Losses in 401(k) Plans.” More ominously, Ayres promised to name “high cost plan” companies on Twitter beginning next spring. And he warned that sponsors could be vulnerable to lawsuits if they don’t stop relying on high-fee investment options.
The sharp criticism has at least some sponsors rethinking their plans, and Fidelity Investments says that spells opportunity for advisors. According to the company’s recently published “Plan Sponsor Attitudes Survey,” 84% of sponsors use an advisor today, up from 75% last year. But 38% are dissatisfied with their current advisor, and 10% are looking to switch. Asked why, 31% said they “need a more knowledgeable advisor,” up from 30% last year and 25% in 2010. A “knowledgeable advisor,” according to the respondents, informs plan sponsors about regulatory changes, consults on how to manage fiduciary risk, consults on plan design and helps minimize costs, among other things. (Fidelity surveyed nearly 1,000 plan sponsors online in March, in the fourth such study since 2008; plan sizes ranged from 25 to 10,000 participants, and Fidelity didn’t identify itself as the survey sponsor.)
Plaintiff attorneys have filed more than 30 suits against 401(k) plan sponsors, according to an earlier RIABiz story. Of those, 17 were dismissed, six were settled and the rest were still pending as of last October.