PLANSPONSOR - October 2017 - 19

Reversing the Search
RESEARCHERS with J.P. Morgan Asset
Management recently sat down with
PLANSPONSOR editors to discuss the
firm's new case study, " Reverse the
Search. " The release of the research coincided
with the publication of the 2017
PLANSPONSOR Recordkeeping Survey,
and the two together offer some important
food for thought for plan sponsors entering
the request for proposals (RFP) process.
Our own analysis shows that recordkeeping
remains a challenging and highly
competitive business, as exemplified by
the shrinking number of providers participating
in the annual survey and accompanying
PLANADVISER Recordkeeping
Services Guide. Brian O'Keefe, director
of research and surveys at Strategic
Insight, parent of PLANADVISER and
PLANSPONSOR, says, " Recordkeeping
is often described as a basic commodity,
and that might be true for the administration
of participant accounts, but the 55
providers responding to this year's survey
showcase a wide range of investment,
technology and servicing options. "
With so much ongoing evolution in
the marketplace, Charlie Cote, head of
retirement link sales at J.P. Morgan Asset
Management, says the time has come
to rethink the " conventional approach "
to recordkeeper searches, which separates
the effort into two phases: " First,
choose the recordkeeper. Then, choose
a QDIA solution. " As laid out in the J.P.
Morgan research, an alternative maybe
better suited for the recordkeeping and
investing market going forward is to
" reverse the order of the search. "
Cote says, " A different order doesn't
have to change the essential element
of any retirement plan search. Defined
contribution (DC) plan advisers who act as
fiduciaries must follow a prudent process
when helping plan sponsors. Their objective
is to help clients choose a strong plan
that meets their unique goals. "
By the end of a 10-year window, the
difference in pricing between the recordkeeper
selected through the traditional
and the reversed processes is striking:
$1,662,477 for the traditional approach,
compared with just $1,043,881 for the
provider chosen through a process that
weighs, from the beginning, the targetdate
fund offering.
Further interesting themes come out
of the research. Notably, Cote says, if an
adviser chooses a TDF and recordkeeper
from the same provider, he may want to
consider the conditions that would trigger
a repricing of the plan. It will be important
from a fiduciary prudence perspective
to closely monitor these conditions
over time and to take action to negotiate
better pricing when appropriate.
" For instance, what if the adviser
switches out the target-date fund because
it underperforms the investment policy
statement? Advisers should read the fine
print in the service agreement and ensure
their client is prepared for all contingencies, "
Cote concludes. -John Manganaro
Most Participants Short
On Savings Advice
MOST 401(k) participants prefer to receive advice on their retirement investments
through email and one-on-one counseling sessions, according to a survey by Betterment
for Business, the technology-focused 401(k) provider.
The " most preferred cadence " for advice was " as often as a question arises " (28%),
suggesting a need for personalized, on-demand advice. The study also identified room
for improvement in terms of how advisers interact with current and potential clients.
In fact, most participants surveyed (53%) said they receive no advice on their retirement
investments at all. This statistic is of particular concern, considering separate
studies that project low returns for the long term and participants' common misconceptions
about retirement savings.
Nonetheless, the Betterment study found that financial advisers remain the most
utilized source for retirement advice-chosen by 65% of those who seek it as opposed to
other potential sources of guidance, such as a bank officer or an insurance agent. Most
say they either fully trust or place substantial trust in their financial advisers.
Betterment notes that this data was collected as news of the Department of Labor
(DOL) fiduciary rule revealed to many consumers that their financial advice could represent
a conflict of interest. However, the firm's survey found that fiduciary awareness
is still just taking hold. Only 42% of respondents correctly identified what a fiduciary
is in the retirement planning context. Moreover, 27% had no understanding of what a
fiduciary is, and 20% believed " financial adviser " and " fiduciary " were synonymous.
Of those aware of the changing fiduciary requirements, 84% still have taken no
action, such as asking whether their personal advisers are fiduciaries. But of those who
have taken action, 48% decided to find a new adviser.
The survey was produced with data from 1,051 consumers who work at small and
midsize businesses and currently contribute to their employer-sponsored 401(k) plan.
-Javier Simon
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