Technology, proposed rule changes by the U.S. Department of Labor, and marketing savvy are driving demand for retirement plan advisors among institutions of higher education, according to a study by Transamerica.
Transamerica conducted its "Retirement Plan Trends in Higher Education" study by surveying 150 higher education plan sponsors during last year's third and fourth quarters.
Institutions of higher learning that said they use a retirement plan advisor more than doubled from 40% in 2016 to 85% in 2020, Transamerica found.
According to respondents, many saw a need for strategic changes to retirement plans in their sector, necessitating the professional services of an experienced advisor.
In addition to an internal reassessment of their professional needs, respondents said that after the Retirement Advisor Council published its 2015 Advisor Search RFP template for the higher education sector, and national advisory firms created their own service models to capture a greater percentage of market share, it was easier to find qualified retirement plan advisors capable of advising them on their institution’s retirement plan needs.
Proposed DOL rule changes may also be driving increased demand for advisors with fiduciary service expertise in higher ed retirement plans, Transamerica reported. Not only had Transamerica found that use of fiduciaries with full-scope investment discretion ERISA 3(38) more than doubled over the past four years, use of fiduciaries for investment advice under ERISA 3(21) had also increased, rising 21% in 2020 versus 2016.
Although advisors who work with colleges and universities to prepare their employees for retirement will have to be experienced in a wide range of fiduciary responsibilities, investment selection was cited as the most important by respondents (58% in 2020 compared with 40% in 2016), followed by assistance with implementation of the fiduciary process, up 12%; plan design, up 11%; and ongoing investment monitoring, up 10%.
Advisors with more higher ed clients will have to schedule more time to meet with them—but not in-person, according to respondents. While the Covid-19 pandemic and accompanying market uncertainty have prompted institutions to meet with their plan advisor monthly or quarterly, instead of annually or bi-annually, corporate travel restrictions due to health concerns have led to more virtual meetings, the study reported.
The way advisor fees are paid has also changed. Transamerica found that advisors and consultants in 2020 are less likely to charge an asset-based fee as they did in 2016, and are more than twice as likely to charge a periodic retainer. A specific dollar amount for a one-time project is also somewhat more commonplace today than four years ago.
Because of their obligation to provide increased fiduciary oversight, institutions are also paying higher advisor and consultant fees than they did in 2016, Transamerica said. Consultants and advisors who are paid 11 to 15 basis points nearly doubled to 32% in 2020.