Engaging Asset Managers to Educate Participants

May 21, 2014 (PLANSPONSOR.com) – Investment managers don’t just provide a product—increasingly they provide communication and expertise to help plan sponsors engage participants, says Jim Danaher of Northern Trust.

Investments are an essential component of any retirement plan. A growing trend in the defined contribution (DC) world, according to Danaher, senior vice president and managing director of defined contribution solutions at Northern Trust Asset Management, is the collaboration between investment manager and plan sponsor.

“Our job is to oversee the implementation of the design and the product, and push it to our clients in the marketplace,” Danaher tells PLANSPONSOR. Product development and portfolio management capabilities work together. The market indicates that a strategy or vehicle to solve a particular issue is desired, and that is how an asset manager manufactures products.

Plan sponsor clients want more than just the product from the investment manager, Danaher says. They are increasingly asking for help in communicating the product and the purpose of the strategy to participants. This collaboration has been occurring more often in large plans over the last four to five years, according to Danaher. It is no longer just the adviser who works on education with participants, but a collaborative effort that coordinates consultant, plan sponsor and recordkeeper, since they are the conduit to the participant.

“In challenging economic times, plan sponsors are saying, ‘It’s your product. No one understands it better than you,’” Danaher explains. The role of the asset manager includes making access to products more efficient and streamlined, and ensuring that it transitions smoothly on the recordkeeper’s platform.

Participants are the consumers of the benefits of a plan, Danaher says, and plan sponsors should help their participants determine what kind of consumers they are. The fund lineup can reflect four types of participant, from those who want less involvement to those who are very actively involved in their investments.

If the plan sponsor considers a spectrum of consumers, on one end are participants who want little to no involvement. At the opposite end are those who are highly involved and very interested in spending time on asset allocation. “We say it’s about involvement, not sophistication,” Danaher says. “How much time does someone want to put into their asset allocation?”

The plan’s fund lineup should include what Danaher calls “pre-mixed” asset-allocation options for participants who want less involvement. Those who want more involvement but do not want to spend much time can choose from core funds, which Danaher describes as very basic asset classes, such as broad market U.S. caps, or a 50/50 mix of equities and fixed income. Extended core funds have more shading and detail. Highly involved participants can be offered a self-directed brokerage option.

Goal setting for participants is a key focus for Northern Trust. “Our mantra is: it’s all about the outcome,” Danaher says, adding that income projections are an important way to help participants understand what they are building toward.

But getting participants engaged is a priority, Danaher says. “How are we engaging them?” he asks. Ongoing research from Northern Trust identified steps that plan sponsors can take to promote greater engagement among younger workers, for example. Plans can tighten conditions on or even eliminate loan options. The more auto features, the better. A plan sponsor can consider an automatic deferral escalation to 10%.

Use of social networking, online and mobile technology is likelier to catch the attention of younger workers than depending on traditional education tools. But make sure the messaging and goals are tailored to the needs of younger employees. “We need to engage them, but not scare them,” Danaher says.

“From a 401(k) standpoint, we need to get participants more focused on why they are in the plan," Danaher says. "The focus needs to be more on helping people see where they’re going, and how they can best get there."