Plan sponsors are encouraging adviser competition: Fidelity

A new survey shows 47% of plan sponsors are considering changing advisers and 48% are thinking about switching record keepers.

2022 will be remembered as a year of change for the retirement plan industry, with investment menu changes and competition among advisers reaching multiyear highs, according to a new survey from Fidelity Institutional.

The 13^th edition of Fidelity’s Plan Sponsor Attitudes Study, which surveys companies that offer retirement plans using a wide variety of record keepers, found that plan sponsors are the most active they’ve been in years, with 88% of respondents planning to redesign their plans and 93% intending to upgrade their investment menu lineup. The study showed that the percentage of sponsors planning lineup changes in 2022 increased in 14 of the 16 categories offered.

The study also revealed that competition among plan advisers and record keepers has hit a boiling point, with 47% of plan sponsors considering a new adviser and 48% considering a change of record keepers.

“Plan sponsors are continuously seeking more expertise from their plan advisors year-over-year to help them in a more diversified capacity and are not afraid to look elsewhere if a competing adviser offers a better experience,” Liz Pathe, head of defined contribution investment only sales at Fidelity Institutional, said in a statement.

Such strong activity this year “increases the expectations and pressures surrounding this space,” Pathe added.

The survey’s results illustrate how intense that pressure has become. Adviser satisfaction reached its most pronounced level in five years (76%). Nevertheless, sponsors actively seeking a new adviser also hit record highs (47%), compared to 2021 (34%).

According to Fidelity’s survey, the top reasons that sponsors are considering changing advisers include the need for better employee communications and education, competition from another adviser with a superior investment lineup, and the need for an adviser who is more effective in dealing with record-keeper service issues.

Fidelity’s study also showed that adviser solicitations have spiked this past year. As for what is piquing sponsor interest, the study revealed three main categories: knowledge about 401(k) plans, lower costs and help with fiduciary responsibilities.

Investment menu changes continue to be on the rise as well, with the Fidelity survey showing that 93% of plan sponsors plan to make changes to their investment lineups this year. The top three planned changes are: raising the number of ESG funds (27%); increasing the number of investment options (27%); and expanding the number of managed account options offered (26%).

When asked about ESG funds, sponsor interest held firm, with 73% stating their adviser has proactively mentioned ESG investment options and 75% of sponsors wanting to know more. Moreover, the study revealed that 44% of sponsors prefer ESG-focused strategies that invest only in companies that screen well based on various ESG factors, while 48% prefer ESG as a management focus and one of many inputs used to make investments decisions.

“Plan sponsors are taking an active role in evaluating various investment menu additions that are at the forefront of our industry,” Pathe said. “Providing education and guidance during a time where our investment landscape is constantly evolving is pivotal in helping employees strengthen their financial knowledge.”

Finally, Fidelity’s survey showed 70% of plan sponsors believe employees are saving enough for retirement, with 64% believing the auto-enrollment deferral rate plus the potential company match are a sufficient retirement savings rate, up from just 46% in 2018.