Adviser Opportunity in 403(b) Market Still Big
Friedman notes that the survey found 11.1% of all 403(b) sponsors are planning on issuing a request for proposals (RFP) in the next 12 months. This jumps to 14.9% for sponsors of plans with 200-999 participants, and 13.2% of large plans (1,000+ participants) are going to market in the next 12 months.
Specific areas where an adviser can add value: Friedman says many sponsors still don’t know their Employee Retirement Income Security Act (ERISA) status and an adviser can help determine that status so sponsors can avoid compliance issues and implement best practices. In addition, the survey found 48.6% of 403(b) plan sponsors have an Investment Policy Statement (IPS), meaning over half either don’t have one or don’t know if they have one (see 403(b) Plans Increase Use of Advisers and Online Communications). An adviser can help sponsors develop an IPS, as well as governance and due diligence processes.
The need for adviser help can also be seen in the number of investment options the survey found sponsors are offering in their plans. For example, according to Friedman, in the higher education market segment, sponsors offer an average of 55 investment options, and in this segment, 62% of participants were contributing to their plans, compared to 74% for all 403(b)s. Friedman points out this is consistent with studies that show more options actually discourage participation.
Friedman adds that sponsors still need help in developing education programs and measuring the effectiveness of their plans to determine if it is helping employees prepare for retirement.
Friedman says he is seeing evolution particularly in the higher education market segment. These plans have traditionally been multiple-provider, non-ERISA arrangements, “but, over time they are starting to realize they need better controls, procedures, and plan discipline,” he states.
One avenue for seeking out 403(b) business is within an adviser’s own community. Advisers can reach out to charitable organizations and talk to them about their retirement plans and whether they are working effectively. Friedman suggests that if the communication uncovers low participation or complicated administration, or no governance, due diligence or education procedures in place, advisers should tell the organization how they can assist.
“The regulations have been out for several years now, we’ve completed the first full year of 5500 and audit requirements, and this made sponsors realize they need to make changes and need help, and that’s an opportunity for advisers to step in,” Friedman concludes.