Next, advisors can help sponsors re-evaluate their plan designs, with an eye toward eliminating costly features and components that ultimately deliver very little value to the organization and plan participants. He cites features such as complex match formulas, certain compliance processes, top-heavy testing for very small plans and lengthy custom notifications about compliance for individual participants. These are areas where advisors might be able to help plan sponsors save money, streamline procedures and improve performance, he says.
Another thing would be complex payroll submissions. "Some organizations have very inefficient payroll process, so they end up submitting redundant data or inefficient file formats that result in their being charged higher fees by record-keepers and administrators," Musto says.
Advisors who roll up their sleeves and help clients conduct an intelligent and thorough review of their plan design can increase their standing and value in the eyes of those clients. "Creating efficiency has a positive impact on fees for the plan sponsor and participants, freeing up resources that can be focused on areas that are actually going to drive better income replacement rates for participants," he suggests.
Advisors can also help sponsors make their plan results more specific and transparent. Traditionally, the industry has focused on statistics such as average deferral rates, contribution rates and portfolio diversification, using that data, on a relative basis, to assess how well a plan is working for its participants. But that approach oversimplifies the factors that ultimately lead to better income-replacement rates for participants, Musto argues. "Where the focus and the dialogue really need to start is by looking at those replacement rates," he insists.
J.P. Morgan Retirement Plan Services has been an innovator in the marketplace, providing those income replacement rates to its advisor partners, clients and plan participants for the better part of a decade, Musto says. "What we've found is that the more sponsors and participants are exposed to that information-through Web sites, statements and targeted communications-the more engaged participants become in saving more and investing more wisely in their program, and the more impactful sponsors become in tailoring their plan designs in ways that increase or improve those results," he says.
Paul Mahan, director of retirement consulting services at Commonwealth Financial Network, says fee disclosure will likely offer advisors and broker-dealers the ability to grow and retain more assets, as more prolific revenue results from greater AUM. "Plan sponsors and their benefit-eligible employees place their trust with a partner and an expert," he says. "In this particular case, it is the advisor that's overseeing and managing-operative word, 'managing'-a retirement plan. The market's definitely going to move toward those advisors that have the tools and the expertise to measure, manage and grow these workplace benefits."
In addition, fee disclosure will allow the industry as a whole to refine and standardize reporting for the first time ever, Mahan adds. Such a data landscape would help plan sponsors, advisors and broker-dealers do a better job of identifying both the strengths and shortcomings of existing plans. "It would provide a more dynamic environment to handle problems and give us an opportunity and the tools to craft a strategy based on what we see regularly, and then to continue building on that," he says.
Lon Henderson, president and CEO of Soltis Investment Advisors in St. George, Utah, says advisors will be able to strengthen their bonds with plan sponsor clients by helping them define "reasonable" service-provider compensation. Advisors best-positioned to benefit will be those who have already adopted a highly transparent business model, particularly fee-only firms, he says.
Kim Anderson, vice president of retirement services at Soltis, points out that transparency has always been the core of the firm's money management model. The firm's vision statement is to create, build and manage wealth so its clients are "free to pursue life's most important endeavors," and that requires a high level of confidence on their clients' part. "The more knowledge and transparency we can provide our clients, the more we educate them about what things actually cost, the greater their level of confidence in us becomes," he says. "That's always been our approach, so we are proactively well-positioned to seize opportunities resulting from the new fee-disclosure requirements."
Many different variables, ranging from plan size and design to an advisory firm's business model and compensation structure, will play a role in the opportunities fee disclosure spawns for the industry. The most important thing, says Steve Dufault, a senior consultant at DiMeo Schneider in Chicago, is for advisors to "open their arms up to fee disclosure and recognize that it's a good thing. Having both plan sponsors and participants understand the fees they're paying-and, more importantly, understand who's getting paid what-is important. Advisors who embrace this approach will ultimately benefit from more intimate relationships with their clients."