Advice Access Expands in 2002

November 25, 2002 (PLANSPONSOR.com) - While many plan sponsors may still lack the legislative clarity on investment advice they might desire, the offering continues to take hold among retirement plans.

More than 37% of the respondents to the 2002 PLAN SPONSOR Defined Contribution Survey now offer investment advice to participants.   Significantly, larger plans demonstrated a heightened willingness to embrace the option.  

A year ago, just 16.7% of plans with more than $500 million in assets offered participants access to investment advice, but nearly 30% of this year’s respondents in that segment now do so.   Similarly, 40% of those plans with $200 to $500 million in assets now say they offer such advice.  There was, however, a softening trend to do so among smaller plans.   Still, nearly half of those plan sponsor respondents with less than $5 million in assets offered advice.

Provider Offerings

A growing number of plan providers provide access to investment advice services, and that ease of access no doubt underlies the fact that a whopping 42% of plan sponsor respondents were offering advice provided by their defined contribution service provider.   A popular option, particularly among smaller employers, was offering advice through a financial planner outside the plan, cited by 30% overall in this year’s survey, and a healthy 50% among plans with less than $5 million in assets. That’s about a 30% increase from last year’s totals

Also likely facilitating the use, if not the access, was the fact that nearly two-thirds of the employers offering the advice were footing 100% of the bill – a decision that can make a significant impact on the rate of utilization, according to most advice providers (see  Medium Matters in Advice Adoption ).   About 13% split the tab with their workers, while participants paid the full bill in 16% of the cases.   All of those figures were comparable with last year’s findings.

Advice Types

Among the so-called name brand providers, Morningstar and Financial Engines continue to dominate the space, with each cited by roughly 18% of the plan sponsor respondents, nearly twice the level cited a year ago.   MPower was cited by 4.7%, also roughly twice last year’s level, with “other advice provider” comprising 7.6%.

As for the kinds of advice, the vast majority was offering “plan specific” advice (88%), and nearly half (41.3%) had access to a live advisor.   However:

  • only a third were giving advice on outside funds
  • less than 4% included company stock in the recommendation (though that may be a function of the number offering stock in their plan), and
  • less than one in five provided automatic, or “one-click,” balance alignment based on recommendations
  • more than a quarter included non-retirement plan assets in their evaluations.

Stock Shocks

There didn’t appear to be any pending Enrons or Worldcoms among this year’s survey respondents.   The number of programs offering company stock as an option was slightly lower than last year – less than 15%, compared with about 16% a year ago – and the average participant investment was also somewhat lower, roughly 22% compared with nearly 25% in last year’s survey.   Of course, that decline could well be the result of market forces, rather than any shift in participant sentiment.   All in all, the plans represented in this year’s survey held roughly 10% of the total outstanding shares of the sponsoring firm.

Given all the public angst over Enron and the like, one might well have expected to see a rise in the number of employers with a written statement of investment policy, even though more than two-thirds of last year’s respondents already had one in place.

While larger plans were, in fact, more likely to have one, there was actually a slight decline in the number of smaller plans that did; this despite a burgeoning trend among service providers to offer a pre-packaged version.   Still, nearly 80% of plans with more than $50 million in assets did have such a document in place, compared with roughly three-quarters of this year’s respondents.

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