SURVEY SAYS: Participant Priorities for Provider

February 28, 2002 - This week we asked readers to try a bit of role reversal - to consider the position of the 'average' participant in your firm in choosing a service provider - and to tell us what you think they would rate most important. And to give it a bit of structure - we offered some multiple choice options.

We were frankly a bit surprised to see that fund selection beat out every other choice by more than 2-to-1.  In fact, more than a third of this week’s respondents said that would be uppermost on participants’ agendas.  Number two was education/advice (with an emphasis on the latter), cited by 17%, while fees drew nearly 13% of the total.  Roughly 8% said it would be more than one of our choices, while name brand funds and Internet services garnered a mere 6% each.  Number of funds brought up the bottom, cited by less than 5%. 

More than 13% of our sampling cited ‘other’ – with fund performance and service (in the form of a real, live person available to help them understand the plan and their choices) largely splitting that total.

As for our extra credit question, we drew some interesting observations – but not really a good statistical sampling.  A word of caution to providers – you apparently think Internet services are a LOT more important than most plan sponsors/participants do.  And there was the reader who noted ‘Our provider apparently thinks we don’t need anything – which is why we are shopping for a new provider.’ 

And now, some ‘spice’ for our survey results – in YOUR words:

‘The average participant wants a good fund selection, a brand name provider and advanced Internet services.  The typical participant also wants all of the funds s/he selects to make money all the time.’

‘I truly believe that the average participant in a 401k plan wants to be told what to do.
Education certainly helps but it’s not enough.

I’ll use the analogy of a doctor visit.  No patient would be satisfied and comfortable if the physician said; “Here’s a few brochures, pamphlets and pharmaceutical marketing materials … now go pick a few drugs and good luck.”
 
The patient (investor) wants to be told specifically what to do. They want a prescription (investment plan) that states what pills (funds) what dosage (allocation) and a warning about possible side effects (volatility).’

What my “average plan participants” want, based on their questions to me, is direct access to a “live person” (not a piece of paper, video or computer screen) with whom they can discuss the plan’s provisions, investment basics (and specifics regarding the plan they participate in) and their unique savings and financial needs for the future.

Maybe we will realize one day that there are significant differences among people and “one size just doesn’t fit all” when it comes to these programs; that there is a deep need for customized, interactive education and communication here…or maybe we’ll just keep giving them a pretty brochure, SPD and web address and think we are communicating.

And then, of course, there is this week’s EDITOR’S CHOICE:  ‘The average participant in our company would pick a 401(k) service provider on three specific categories:  1) the ability for our provider to read minds, 2) the ability for our provider to predict the future and 3) a detailed list of instructions on what, when, why, and how to invest their 401(k) dollars.   If a service provider could offer all of these features with their 401(k) administration, then our participants would be happy!  Otherwise it is back to returning voicemail, replying to e-mail and dreading the phone ringing with a question that was already answered in the plan information that was personally hand delivered to them.’

Thanks to everyone who participated in our survey. 

top

The Verbatims Continue:

Personally, fund selection is very important.  Following that would be asset allocation/risk assessment advice through a local broker or through financial engines.  If you have stellar investments and a good sound basis for making decisions - to me you can't go wrong.


For average participant:  g (i.e., all of the prior ones and in order of importance as listed from a-f).
 
For provider: g (i.e., all of the prior ones and in order of importance d, e, f, c, b, a)
I think that the average participant would say advice. 

Certain of the items in your question I think are viewed by participants as standard, so are expected by everyone.  That includes Internet access, access to a variety of funds, etc.

They really don't care about the educational materials - they don't read them anyway.


The average non-retirement focused participant will probably say 'what do you say the name of that plan is again?  And, I have THREE pension plans?'

The average retirement focused participant is saying 'education'. 25-30% of our population

The average retired participant is definitely saying 'service'. 20-25% of our population.

The recordkeeper (we're unbundled) is spending its time and money improving it's Internet services. (Definitely NOT the services provided to our average retired participants - who tell me so at least weekly).  However, to their credit, the Internet services serve a very large and silent majority of our participants.  Their 'service' to the retired participants seems to lead to an exodus of retired funds (y'know, the very large accounts) within a year or so after retirement as the retired participants want the personal service and can get it closer to home.


I would say that fund selection is the most important factor for me.

My provider would choose number of funds available, I think, as they are just now expanding their offerings.


The one item not specifically listed is fund performance. That's what I hear most about when participants decide to complain!

Most or our participants are employed doing labor intensive manufacturing, and are paid $7 to $12 per hour.  They tell me they want to make money. They don't care about name brand funds or providers - as long as they make money.  They typically chase returns and have been know to ask, "What should I invest in?"  These employees don't want the responsibility or burden of learning the basics of investing nor do they want to have to monitor their investments, they want the employer to do it for them.  The company will not return to the old way of "employer/trustee directed investments" as the liability is too high.  I am stuck in the middle trying to help employees with education when all they want is someone to tell them what to do.

The do not read the WSJ, they don't use the internet (even though it is available), they don't know or care if it is Fidelity, AIM, Vanguard or what ever....  About 20% of the work force is Spanish, Chinese, or Korean. The name is just a name - easily confused and not likely to inspire a devout following.


I would love to have not only more funds in our contract, (we have 5), but more fund families from which to choose.  Internet access would be a huge plus for me as well.  As it stands, we have the ability to move our money once a quarter, using a PAPER FORM.  While I don't subscribe to market timing, it would be nice to join the 21st century and live in a daily valued environment.  

More education / advice offerings.    I think people don't take advantage of their 401(k) plans because they don't understand the benefits or think they can't afford it.      They are also unable to decide where to invest their money if they were to enroll.

The most common request from plan participants that I meet with is the need for education and investment advice. I routinely hear "I just don't know what to do" from plan participants.

The average participant wants a good fund selection, a brand name provider and advanced Internet services.  The typical participant also wants all of the funds s/he selects to make money all the time.

1) The rqmnt to give honest, complete information akin to what the Plan Administrator must provide.
(2) The ability to give full and complete information on who our Plan Administrator is, make inquiries of him/her and what legal rights an employee has when doing so.
(3) Multiple offerings which span a variety of investment strategies and offered at a fair price (fees), with a specific statement that no kickbacks or quid pro quo was/is taken to obtain the account.
(4) Sterling reputation for integrity.

One thought is that participants want to know how their individual investments performed against the benchmarks. The statements should reflect "personalized" information that is easy to interpret.

A stable, thoughtful, name-brand provider.

Fund selection and number of funds go hand in-hand.

I truly believe that the average participant in a 401k plan wants to be told what to do.
Education certainly helps but it's not enough.

I'll use the analogy of a doctor visit.  No patient would be satisfied and comfortable if the physician said; "Here's a few brochures, pamphlets and pharmaceutical marketing materials ... now go pick a few drugs and good luck."
 
The patient (investor) wants to be told specifically what to do. They want a prescription (investment plan) that states what pills (funds) what dosage (allocation) and a warning about possible side effects (volatility).


The key to your question is the "average plan participant".  I think we, as plan sponsors, tend to design our plans around the expectations of a management group who have the responsibility for the operation of the plan.  The knowledge and desires of this group are significantly more sophisticated than that of the "average plan participant"...and the plan's provisions reflect this.  The result: a plan that the "average plan participant" does not understand regardless of how much "communication" we administrators offer.
 
What my "average plan participants" want, based on their questions to me, is direct access to a "live person" (not a piece of paper, video or computer screen) with whom they can discuss the plan's provisions, investment basics (and specifics regarding the plan they participate in) and their unique savings and financial needs for the future.

Maybe we will realize one day that there are significant differences among people and "one size just doesn't fit all" when it comes to these programs; that there is a deep need for customized, interactive education and communication here...or maybe we'll just keep giving them a pretty brochure, SPD and web address and think we are communicating.


Without a doubt, the average participant would say that the most important criteria in evaluating the 401(k) service provider is  (b) fund selection (i.e., past performance IS a predictor of future returns) and (f) education/advice offerings, so someone else can shoulder the responsibility of this awesome task.

Our current service provider would say fees, competitive fees. Of course, you get what you pay for, you know?


Our participants seem most concerned with easy access to the information they want at the time they want it.  They like the Internet but also want to talk to a live person.  They also want quick turnaround on loans, withdrawals and distributions.  Even though our plan is largely employer stock (and it hasn't been performing very well) they seem less concerned with investments than they are with customer service.

The average participant in our company would pick a 401(k) service provider on three specific categories:  1) the ability for our provider to read minds, 2) the ability for our provider to predict the future and 3) a detailed list of instructions on what, when, why, and how to invest their 401(k) dollars.   If a service provider could offer all of these features with their 401(k) administration, then our participants would be happy!  Otherwise it is back to returning voicemail, replying to e-mail and dreading the phone ringing with a question that was already answered in the plan information that was personally hand delivered to them.

Participants want the following ranked in order:
* Education/advice
* Fund selection
* Number of funds offered
* Internet Service

Provider thinks we want:  Internet provided retirement plan--utilization is low enough that it does not appear to be what participants want


I think right now the participants would say fund performance is the most important aspect of their 401(k) plan.....after seeing quarter after quarter of statements showing losses, they're more focused on that they have ever been.

We recently did a survey at our firm for the same - your list is accurate with our survey except for our number one/key issue - service.  They wanted quality service; they wanted an administrator with the same sense of priority they had for their particular transaction (when they want something - they want it now!). 

As the plan administrator, I second their results!


The most frequent request I ever get regarding 401(k) plan participation is for more education about investing in general.  I often get complaints about the number of funds available, but that is usually because a particular mutual fund they like but cannot afford to get into on their own is not in the mix.  Overall, there is a cry to understand the basics so the participants can make the most of the plan they are in.

You missed a big alternative on your multiple choice question so I guess it would have to go under, (h) other - the choice of having a professional allocate their account for them instead of them doing it themselves.

More or our participants are getting hungry for good, simple, and easy to understand information as they do want to know what to do.  More seem willing to take on this task and like the control but they do want it to be fast and easy, not a major time consuming pursuit.  The more they learn the better the selection needs to be.  Not necessarily more choices (we have 10 and are considering 15 with changes as well as additions) but a good selection that will expose them to different markets.

The number one criteria would have to be fund performance.  Who cares how many funds you have or how many selections you offer if your 401k provider has a lousy investment track record. What we look for is a long term record of consistent performance where the provider has met or exceeded the appropriate benchmarks or bogies for the investment category or sector.  I'd rate investor advice/services as #2, fund selection #3, brand name provider #4, Internet services #5, number of funds #6 and fees #7.

The employees (and me, the plan sponsor) would answer (g.) In fact, we want not "more than one" of these features, but we EXPECT them ALL.  It's like asking what's most important in an automobile: safety, comfort, reliability or price?  We expect all of these features nowadays.  While we may be willing to pay more for the car as a status show, however, we are miserly about what we pay for 401(k) fees. 

The participants in our plan would find fund selection and fees to be the most important considerations.  I thinks our provider, however, would say the most important is Internet services.  This may be true for some of their customers, but a majority of our manufacturing employees do not even have access to the Internet.

The average person wouldn't care about the cost since the firm is paying for it.  However, most of them want lots of funds to pick from and Internet service (which they use during company time to play with their funds). 

Our provider apparently thinks we don't need anything - which is why we are shopping for a new provider.  They always send us a bill, but just try to ask them for something and you have a major challenge on your hands.  We don't even have a representative assigned to our account anymore - they prefer to work in teams.


I would say that the "name brand recognition" would be the most important, with personal advice a VERY close second.  Most people want to be told what to do, and as long as the return is decent, they are pleased.

My experience is that plan participants want one thing - investment performance.  The rest is just details, with the possible exception of fees, so that would be the one in your list I'd vote for.

Of course, it's essentially impossible to deliver performance, so as plan sponsors we hope the provider does a good job of explaining why performance can't be guaranteed.

Most of the things in your list are really concerns of the plan sponsor to reduce the administrative burden of running the plan (e.g. participants don't call HR with questions) or the level of gripping ("We don't have enough choices").


My experience is that plan participants want one thing - investment performance.  The rest is just details, with the possible exception of fees, so that would be the one in your list I'd vote for.

Of course, it's essentially impossible to deliver performance, so as plan sponsors we hope the provider does a good job of explaining why performance can't be guaranteed.

Most of the things in your list are really concerns of the plan sponsor to reduce the administrative burden of running the plan (e.g. participants don't call HR with questions) or the level of gripping ("We don't have enough choices").


top

«