Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors

Transcription

1 Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors March 2014

2 Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors Copyright 2014 AARP AARP Research 601 E Street NW Washington, DC Reprinting with Permission

3 AARP is a nonprofit, nonpartisan organization, with a membership of nearly 38 million, that helps people turn their goals and dreams into real possibilities, strengthens communities and fights for the issues that matter most to families such as healthcare, employment and income security, retirement planning, affordable utilities and protection from financial abuse. We advocate for individuals in the marketplace by selecting products and services of high quality and value to carry the AARP name as well as help our members obtain discounts on a wide range of products, travel, and services. A trusted source for lifestyle tips, news and educational information, AARP produces AARP The Magazine, the world's largest circulation magazine; AARP Bulletin; AARP TV & Radio; AARP Books; and AARP en Español, a Spanishlanguage website addressing the interests and needs of Hispanics. AARP does not endorse candidates for public office or make contributions to political campaigns or candidates. The AARP Foundation is an affiliated charity that provides security, protection, and empowerment to older persons in need with support from thousands of volunteers, donors, and sponsors. AARP has staffed offices in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Learn more at Acknowledgements AARP collected the data for this project through an online survey administered by PLANSPONSOR to employers that sponsor defined contribution plans. S. Kathi Brown of AARP s Research Center wrote the report, and Jennifer Leslie proofed the report. The author would like to thank the following AARP staff for their valuable input: Cristina Martin-Firvida, Tom Nicholls, Rebecca Perron, Jean Setzfand, Mary Ellen Signorille, Laura Skufca, Mary Wallace, Alicia Williams, Ryan Wilson, and Melissa Castro-Wyatt. All media inquiries about this report should be directed to AARP s Media Relations at (202) Inquiries from others should be directed to S. Kathi Brown at (202) or skbrown@aarp.org.

4 Table of Contents EXECUTIVE SUMMARY... 1 INTRODUCTION... 6 METHODOLOGY... 7 DETAILED FINDINGS... 9 A. Availability of One-on-One Advice from DC Provider... 9 B. Trust that DC Provider s Advice Is in Participant s Best Interest C. Attitudes Related to the Importance of Independent Advice and Conflicts of Interest D. Choosing Between Conflicted Advice and No Advice At All E. Support for Enhanced Requirements F. Likelihood to Act on Own APPENDIX A: Definitions of Key Terms APPENDIX B: Profile of Investment Advice Section Respondents APPENDIX C: Annotated Questionnaire APPENDIX D: Availability of Advice Other than One-on-One Advice from DC Provider APPENDIX E: Plan Sponsors vs. Plan Participants: Comparison to Similar Questions in Plan Participant Survey Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors -i-

5 Table of Figures Figure 1: Type of One-on-One Advice Offered by DC Provider Figure 2: Trust that DC Provider's Advice Is in Best Interest of Plan Participants Figure 3: "Completely Trust" DC Provider to Offer Advice in Best Interest of Participants Figure 4: Agreement with "It is important for DC plan participants to receive advice from an independent advisor who does not make money from the plan's investments." Figure 5: "Strongly Agree" that it is important to receive advice from an independent advisor who does not make money from the plan's investments Figure 6: Agreement with "Investment advice that DC providers offer to plan participants may be influenced by the money that the provider makes from the plan's investments." Figure 7: Preference for Investment Advice from Someone with a Conflict of Interest vs. No Investment Advice At All Figure 8: Preference for Investment Advice from Someone with a Conflict of Interest Figure 9: Support for Requiring DC Provider Advice to be in the Best Interest of Plan Participants Figure 10: Support for Requiring DC Providers to Clearly Explain if the Provider Is Not Obligated to Give Advice in the Best Interest of Participants Figure 11: Who Should be Responsible for These Enhanced Requirements? Figure 12: Likelihood of Requiring DC Providers to Give Advice in Plan Participants' Best Interest (in the Absence of Government Requirements) Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors -ii-

6 EXECUTIVE SUMMARY INTRODUCTION Today millions of American workers save for retirement in employer-sponsored defined contribution retirement savings plans, such as 401(k)s and 403(b)s, and must make investment decisions that can have lasting consequences for their retirement security. In order to assist plan participants with these decisions, financial institutions that provide these plans ( DC providers ) often field inquiries from participants, providing investment-related advice that plan participants may interpret as being offered with their best interest in mind. However, for many situations in which advice is offered by DC providers, current regulations do not require the providers to act in the best interest of plan participants. In recent years, the Department of Labor has considered changing regulations that affect investment advice offered by DC providers to participants in employer-sponsored plans. In light of the Department of Labor s proposal to update the existing regulations, AARP undertook two surveys in 2013 to measure support for requiring investment advice to be in the best interest of plan participants. The first of the two surveys, a survey of participants in 401(k) and 403(b) plans, was conducted in May 2013 and is described in detail in a separate report. 1 The second survey, which is the focus of this report, expands on the first by gauging the perspective of the employers that sponsor defined contribution plans ( plan sponsors ). This survey was conducted from late June through mid-september 2013 among 3,010 plan sponsors. 2 It examines a range of issues related to investment advice for plan participants, including whether plan sponsors think that advice offered to plan participants by DC providers should be in the best interest of plan participants (i.e. whether such advice should be held to a fiduciary standard ). This report presents detailed findings from the survey of plan sponsors and, when possible, draws comparisons to the survey of plan participants. 1 AARP. Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants, September Defined contribution plans are retirement plans to which employers and/or employees make contributions. Examples of common employer-provided defined contribution plans include 401(k) plans, 403(b) plans, 457 plans, and thrift savings plans. See Appendix A for a more detailed definition of defined contribution plans and other key terms. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 1

7 KEY FINDINGS Similar to the recent survey of 401(k) participants, this survey of plan sponsors reveals widespread support for requiring advice from DC providers to be in the best interest of plan participants and for requiring DC providers to clearly explain when their advice is not required to be in the plan participant s best interest. While most sponsors indicate that they trust their DC provider to offer advice in the best interest of plan participants, the majority also agree that it is important to receive advice from an independent advisor unaffiliated with the plan and that advice offered by DC providers may be influenced by the money that the provider makes from the plan s investments. Some of the survey s specific findings are as follows: Availability of One-on-One Advice from DC Provider Nearly two in three (65%) plan sponsors say that their DC provider offers one-on-one investment advice or consultation to their plan participants (over the phone, in person, and/or online). Just over one in three (35%) say that their provider does not offer such oneon-one advice. Support for Enhanced Requirements of DC Providers Nearly nine in ten (89%) plan sponsors say that they would favor (68% strongly, 21% somewhat ) requiring DC providers to give advice that is in the best interest of plan participants. Just 7 percent oppose this requirement, while 5 percent gave no answer. o Sponsors whose DC provider offers one-on-one advice are especially likely to be in favor of requiring DC provider advice to be in the best interest of plan participants. For example, over nine in ten (92%) sponsors whose DC provider offers one-on-one advice favor (strongly or somewhat) requiring this, compared to just over eight in ten (83%) sponsors whose DC provider does not offer one-on-one advice. Nearly as many plan sponsors (88%) favor requiring DC providers to clearly explain to plan participants if the provider s advice is not obligated to be in the participant s best interest (59% strongly favor, 29% somewhat favor). Comparison to Plan Participant Survey: AARP s separate survey of plan participants revealed similar levels of widespread support for each of these requirements. Specifically, 93 percent of plan participants said that they would favor requiring DC providers to give advice in the best interest of participants; and, 89 percent said that they would favor requiring DC providers to clearly explain if the provider s advice is not obligated to be in the participant s best interest. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 2

8 Likelihood to Act Without Government Mandate In the absence of a government mandate, relatively few plan sponsors express a high likelihood of imposing these requirements on their own. Specifically, if the government were to choose not to impose these requirements, four in ten (40%) plan sponsors whose DC provider offers one-on-one advice say that they would be very likely to require their provider s advice to be in the best interest of plan participants. Nearly as many (38%) indicate that their organization is somewhat likely to impose such requirements on their provider. This leaves nearly one in five (18%) who are unlikely to consider imposing such requirements in the absence of government mandates, and another 4 percent who provided no answer. Trust that DC Provider s Advice Is in Participant s Best Interest Despite the large share of plan sponsors who favor requiring DC provider advice to be in the best interest of plan participants, an equally large share (91%) of plan sponsors trust (completely or somewhat) their DC provider to offer investment advice that is in the best interest of plan participants. However, trust is more widespread among sponsors whose provider currently offers oneon-one advice than among sponsors whose provider does not currently offer one-on-one advice. o Of those sponsors whose DC provider offers one-on-one advice, more than nine in ten (96%) at least somewhat trust their provider to give advice that is in the participant s best interest. In comparison, of those sponsors whose provider does not offer one-on-one advice, eight in ten (80%) say that they would at least somewhat trust their provider to give advice in the participant s best interest. Notably, the share of sponsors who completely trust their provider to give advice in the best interest of participants is only 28 percent among those sponsors whose provider does not offer participant advice. In contrast, among sponsors whose provider does offer participant advice, nearly two in three (65%) report that they completely trust their provider s advice. Comparison to Plan Participant Survey: AARP s separate survey of plan participants uncovered similar levels of trust in the provider s advice, with nearly nine in ten (87%) plan participants indicating that they would trust their plan provider to offer advice in their best interest. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 3

9 Importance of Independent Advice and Acknowledgement of Conflicts of Interest Over three in four (77%) plan sponsors agree (strongly or somewhat) that it is important for DC plan participants to receive investment advice from an independent advisor who does not make money from the plan s investments. o Sponsors whose DC provider currently offers one-on-one advice to plan participants are less likely than other sponsors to agree that independent advice is important. For example, among sponsors whose provider offers one-on-one advice to plan participants, approximately four in ten (42%) strongly agree, compared to more than half (52%) of those whose provider does not offer one-on-one advice. Despite the large share of sponsors that acknowledge the importance of independent advice, considerably fewer acknowledge the conflicts inherent in advice offered by DC providers. Specifically, under six in ten (56%) agree (somewhat or strongly) that the advice offered by DC providers to plan participants may be influenced by the money that the provider makes from the plan s investments. Comparison to Plan Participant Survey: In AARP s separate survey, plan participants expressed widespread agreement with each of the above sentiments. 3 Like plan sponsors, approximately eight in ten (81%) plan participants agreed that it is important to receive advice from an independent advisor. Over eight in ten (84%) plan participants agreed that advice from plan providers may be influenced by the money the provider makes from the underlying investments, making plan participants more likely than plan sponsors to agree that provider advice may be conflicted. IMPLICATIONS The findings from this survey demonstrate that a majority of DC plan sponsors support enhanced requirements that hold advice from DC providers to a fiduciary standard as well as requirements for DC providers to clearly disclose upfront the limitations of advice that is not held to a fiduciary standard. Although most trust their DC provider to offer advice in the best interest of plan participants, more than half acknowledge that a DC provider s advice may be conflicted. This suggests that many sponsors understand the need for stronger protections despite a sense of comfort with their own provider. Moreover, sponsors whose providers currently offer participant advice are especially likely to support holding advice to a fiduciary standard. The particularly widespread support among this group is a testament to the value that sponsors most likely to be affected by the regulatory change would place on greater assurances that their participants are protected from conflicted advice. 3 The wording of the statements included in the separate survey of plan participants varied somewhat from the wording of the statements in the survey of plan sponsors. See Appendix E. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 4

10 Although some sponsors indicate that they may impose their own requirements on plan providers in the absence of a federal requirement, it is important to remember that requirements designed by individual employers are likely to vary from employer to employer, leaving some plan participants with considerably less protection than others. Additional research may be useful to learn more about the specific requirements that some sponsors expect to institute themselves. The advantage of federally imposed requirements is that federal requirements would provide the same protection to all covered plan participants. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 5

11 INTRODUCTION Background Today millions of American workers save for retirement in employer-sponsored defined contribution (DC) retirement savings plans, such as 401(k)s and 403(b)s, and expect those plans to serve as a major source of their income in retirement. 4 This is in stark contrast to many decades ago when most workers were covered by defined-benefit pension plans. For example, according to the Department of Labor, the number of active participants in private-sector defined contribution plans increased from 11.2 million in 1975 to 73.6 million in 2011 while the number of active participants in private-sector defined benefit plans declined from 27.2 million to 16.5 million during the same time period. 5 Unlike participants in defined-benefit pension plans who were guaranteed retirement income simply by meeting service requirements, participants in most defined contribution plans bear the responsibility of important investment decisions that can have lasting consequences for their retirement security. In order to assist plan participants with these decisions, defined contribution plan providers often field inquiries from participants, providing investment-related advice that plan participants may interpret as being offered with their best interest in mind. However, for many situations in which advice is offered by plan providers, current laws do not require plan providers to act in the best interest of plan participants. The primary statute that is in place to protect participants in employer-sponsored retirement plans, the Employee Retirement Income Security Act (ERISA), was established in the mid-1970s when defined benefit plans were the norm and workers were less likely to be in need of investment advice. ERISA specifies that investment advice offered to individual plan participants must meet a fiduciary standard (i.e., it must be in the best interest of the plan participants). However, the regulation defining who is a fiduciary narrows the requirement so that one-time advice would typically not be required to be in the plan participant s best interest whereas advice provided on a regular basis that meets several other criteria may be required to be in the participant s best interest. In recent years, the Department of Labor has been working to revise the section of ERISA that deals with investment advice in an effort to broaden the circumstances under which advice is required to be in the best interest of plan participants. This will better protect plan participants from the risks of receiving advice from providers whose conflicts of interest may lead them to offer advice that benefits the providers themselves more so than the plan participants. 4 Employee Benefit Research Institute. Issue Brief No. 384 The 2013 Retirement Confidence Survey: Perceived Savings Needs Outpace Reality for Many (March 2013) 5 U.S. Department of Labor. Employee Benefits Security Administration, Private Pension Plan Bulletin Historical Tables and Graphs (June 2013) Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 6

12 Because this issue has the potential to affect the retirement security of millions of retirement plan participants, AARP conducted two surveys in 2013 to measure support for holding investment advice to a fiduciary standard. The first survey, which examined this issue from the perspective of plan participants, was conducted in May 2013 and published in September. 6 The second survey, which examined this issue from the perspective of plan sponsors, was conducted from June through September This report presents the findings from the second survey. Objectives This survey of employers that sponsor retirement savings plans ( plan sponsors ) was conducted in order to understand the degree to which plan sponsors support or oppose requirements to hold investment advice from financial institutions that manage the plans ( plan providers ) to a higher standard. The survey also explores a variety of related issues, including trust of plan providers advice, the importance of independent advice, and preferences for receiving investment advice from someone with a financial conflict of interest vs. receiving no investment advice at all. METHODOLOGY In order to collect the data presented in this report, AARP contracted with PLANSPONSOR to add a set of survey questions about investment advice to the 2013 edition of the PLANSPONSOR Annual Defined Contribution (DC) Survey. 7 The survey was intended to be completed by employers (plan sponsors) that offer one or more defined contribution plans, such as a 401(k), 403(b), 457, or other such plan. Sampling and Data Collection The primary sample for the survey consisted of PLANSPONSOR s database of subscribers and former subscribers as well as client lists supplied by DC providers. PLANSPONSOR ed approximately 65,000 survey invitations to DC plan sponsors in its database and DC plan sponsors on the supplied client lists. In addition to these invitations, the survey was also promoted through a daily e-newsletter published by the organization and through an ad on the organization s web site. Responses were collected from late June 2013 through mid-september After data collection was completed, PLANSPONSOR reviewed the final data set to ensure that no more than one completed survey was included form each participating plan sponsor. Respondents A total of 5,991 employers that sponsor defined contribution plans responded to the PLANSPONSOR survey. Of the 5,991 respondents who took the PLANSPONSOR survey, 3,010 respondents completed the Investment Advice section that included AARP s questions. 6 AARP, Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants, September For more information about PLANSPONSOR, a publisher of newsletters and other informational resources for sponsors and providers of employer-based retirement plans, please see Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 7

13 The findings presented in this report are based on those 3,010 respondents. Of the 3,010 DC plan sponsors who responded to the Investment Advice section of the survey, nearly one in three (31%) had fewer than 100 participants across all of their DC plans, close to four in ten (38%) had participants, and three in ten (31%) had 1,000 or more participants. Throughout the report, we will refer to the sponsors with less than 100 DC plan participants as small sponsors, those with participants as medium-sized, and those with 1,000 or more participants as large. Weighting Due to the absence of appropriate benchmarks, the results from this survey are not weighted. Interpreting the Findings This research provides valuable insight and information into the attitudes of a large number of employers that sponsor defined contribution plans. However, it is important to keep in mind that this research is based on a convenience sample and not a probability sample, meaning that we are unable to say with certainty that these findings would represent the opinions of plan sponsors that are not part of the sample, such as plan sponsors that do not subscribe to PLANSPONSOR or plan sponsors that were not on the supplied client lists. For the purpose of identifying noteworthy differences between responses to different questions and/or between subgroups of respondents, this report treats percentage point differences of the following magnitudes as directionally significant: Results Based On: All Respondents (n=3,010) Respondents whose DC providers offer one-on-one advice (n=1,966) Respondents whose DC providers do not offer one-on-one advice (n=1,044) Differences That Are Directionally Significant: Plus or Minus 2 percentage points Plus or Minus 2.2 percentage points Plus or Minus 3 percentage points Comparisons Between: Plus or Minus 4 percentage points Respondents whose DC providers offer one-on-one advice (n=1,966) and Respondents whose DC providers do not offer one-on-one advice (n=1,044) Note: The above suggestions are intended to facilitate interpretation of the findings and enable comparisons between groups. However, because the sample is not a probability sample, no estimates of actual sampling error can be calculated. As always, it is also important to remember that all sample surveys and polls may be subject to multiple sources of error, including but not limited to sampling error, coverage error, and measurement error. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 8

14 DETAILED FINDINGS A. Availability of One-on-One Advice from DC Provider Nearly two in three (65%) DC plan sponsors say that their DC provider offers one-on-one investment advice or consultation to their plan participants (over the phone, in person, and/or online). One-on-one advice offered over the phone is the most common, with 55 percent of respondents indicating that their DC provider offers such advice over the phone. Next most common is one-on-one advice offered in person (44%) followed by one-on-one advice offered online (such as through online chat, , Skype, etc. 28%). Just over one in three (35%) say that their provider does not offer such one-on-one advice. (See Figure 1.) Differences by Size Availability of one-on-one advice from the DC provider varies somewhat by number of DC plan participants, with larger sponsors less likely to offer such advice through the DC provider. Specifically, plan sponsors with 1000 or more participants (60%) are somewhat less likely than those with less than 1,000 participants (68%) to offer such advice through the DC provider. 8 8 It is important to note that one-on-one advice through a DC provider is only one of a variety of possible channels through which plan sponsors may choose to make advice available to their plan participants. Thus, plan sponsors whose DC providers do not offer one-on-one advice may in fact make advice available to their plan participants through other methods, such as through third parties or through DC provider tools. For example, of those sponsors who indicated that one-on-one advice is not offered by their DC provider, 55% had indicated in an earlier question (in another part of the survey) that investment advice is available to their participants through channels such as personal interaction with an advisor outside of the plan, another third party (such as Financial Engines or Morningstar), or proprietary services/tools offered through the DC provider. (See Appendix D for more information.) Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 9

15 Figure 1: Type of One-on-One Advice Offered by DC Provider Type of One-on-One Advice Offered by DC Provider (by # of DC plan participants) Phone In person Online None 38% 28% 25% 31% 29% 35% 40% 32% 32% 44% 46% 49% 55% 53% 57% 55% Total (n=3,010) 1,000 or more (n=927) (n=1,134) Less than 100 (n=936) 0% 20% 40% 60% 80% 100% Q1. Does your DC provider offer one-on-one investment advice or consultation for individual plan participants through any of the following channels? (Check all that apply.) Extra Fees for One-On-Advice from DC Provider Of those sponsors whose DC provider offers one-on-one advice, nearly eight in ten (79%) say that the participant is not charged an extra fee for the advice, nearly one in ten (9%) say that it depends on the circumstances, and 5 percent say that the participant is charged an extra fee. The remaining respondents did not know whether an extra fee is charged. Differences by Size Sponsors of larger plans are more likely than those with smaller plans to report that their participants pay an extra fee for this advice. Specifically, nearly one in ten (9%) sponsors with 1000 or more participants say that their participants pay an extra fee for DC provider one-on-one advice, compared to only 3 percent of those with less than 100 participants and only 5 percent of those with participants. Importantly, however, the smallest sponsors were more likely than the larger sponsors to say that they do not know whether an extra fee is charged (11% of sponsors with less than 100 participants did not know if an extra fee is charged, vs. 4% of sponsors with 100 or more participants). Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 10

16 B. Trust that DC Provider s Advice Is in Participant s Best Interest Over nine in ten (91%) plan sponsors trust (52% completely and 39% somewhat ) their DC provider to offer investment advice that is in the best interest of plan participants. Only about one in twenty (6%) indicate that they do not trust ( don t trust very much or don t trust at all ) their DC provider to give advice that is in the participant s best interest. Comparison to Plan Participant Survey AARP s separate survey of plan participants uncovered similar levels of trust in the provider s advice, with nearly nine in ten (87%) plan participants indicating that they would trust their plan provider to offer advice in their best interest. 9 Differences by Whether DC Provider Currently Offers One-On-One Advice Trust is more widespread among sponsors whose provider currently offers one-on-one advice than among sponsors whose provider does not currently offer advice. Of those plan sponsors whose DC provider offers one-on-one advice, more than nine in ten (96%) trust their provider to give advice that is in the best interest of the plan participants, including nearly two in three (65%) who say that they completely trust that the provider s advice is in the best interest of participants and approximately three in ten (31%) who somewhat trust the advice. In comparison, of those sponsors whose provider does not offer one-on-one advice, four in five (80%) would trust their provider to give advice in the best interest of participants, including a mere 28 percent who say that they would completely trust the provider to offer advice in the best interest of participants and 53 percent who would somewhat trust the advice. (See Figure 2.) 9 AARP, Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants, September Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 11

17 Figure 2: Trust that DC Provider's Advice Is in Best Interest of Plan Participants Trust that DC Provider's Advice Is in Best Interest of Plan Participants (By Availability of DC Provider Advice) Completely trust 28% 65% Somewhat trust Don't trust very much 2% 11% 31% 53% DC provider offers one-onone advice (n=1,966) Don't trust at all 1% 3% DC provider does not offer one-on-one advice (n=1,044) No Response 2% 7% 0% 20% 40% 60% 80% 100% Q3a. How much do you trust your DC provider to give investment advice or consultation to individual plan participants that is in the best interest of your plan participants? / Q3b. If such advice was available to your participants, how much would you trust your DC provider to give investment advice to individual plan participants that is in the best interest of your plan participants? Differences by Size Large sponsors were less likely than small and medium-sized sponsors to completely trust their DC provider to offer advice in a participant s best interest. For example, among sponsors whose DC provider offers one-on-one advice, nearly seven in ten small sponsors (69%) and mediumsized sponsors (68%) say that they completely trust their provider to offer advice in the participant s best interest, compared to 57 percent of large sponsors. Among sponsors whose provider does not offer one-on-one advice, about three in ten (31%) medium-sized sponsors completely trust their provider s advice, compared to just under one in four (24%) large sponsors. (See Figure 3.) Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 12

18 Figure 3: "Completely Trust" DC Provider to Offer Advice in Best Interest of Participants "Completely Trust" DC Provider to Offer Advice in Best Interest of Participants (by Availability of DC Provider Advice and # of Plan Participants) % Who Completely Trust 1,000 or more participants (n=554; n=373*) 24% 57% DC provider offers one-onone advice participants (n=767; n=367*) 31% 68% DC provider does not offer one-on-one advice Less than 100 participants (n= 636; n=300*) 28% 69% 0% 20% 40% 60% 80% 100% Q3a. How much do you trust your DC provider to give investment advice or consultation to individual plan participants that is in the best interest of your plan participants? / Q3b. If such advice was available to your participants, how much would you trust your DC provider to give investment advice to individual plan participants that is in the best interest of your plan participants? *For each size group, the n displayed first represents the base for the % of respondents in that size group whose DC providers offers one-on-one advice, while the n displayed second represents the base for the % of respondents in that size group whose DC providers do not offer such advice. C. Attitudes Related to the Importance of Independent Advice and Conflicts of Interest Over three in four (77%) plan sponsors agree (strongly or somewhat) that it is important for DC plan participants to receive investment advice from an independent advisor who does not make money from the plan s investments. Despite the large share of sponsors that acknowledge the importance of independent advice, sponsors are less likely to acknowledge the conflicts inherent in advice offered by DC providers. Specifically, less than six in ten (56%) agree that the advice offered by DC providers to plan participants may be influenced by the money that the provider makes from the plan s investments. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 13

19 Comparison to Plan Participant Survey In AARP s separate survey, plan participants expressed widespread agreement with each of the above sentiments, including the sentiment that elicited only moderate levels of agreement from plan sponsors. Like plan sponsors, approximately eight in ten (81%) plan participants agreed that it is important to receive advice from an independent advisor. Over eight in ten (84%) plan participants also agreed that advice from plan providers may be influenced by the money the provider makes from the underlying investments, making plan participants much more likely than plan sponsors to agree that provider advice may be conflicted. Differences by Whether DC Provider Offers One-on-One Advice, and by Plan Size Importance of Independent Advice Compared to sponsors whose DC provider does not offer one-on-one advice, sponsors whose provider does offer such advice are somewhat less likely to agree that it is important for plan participants to receive advice from an independent advisor. However majorities in both groups express at least moderate agreement (80% of sponsors whose provider does not offer such advice strongly or somewhat agree, compared to 76% of those whose provider does offer advice). The difference in the share who strongly agree is more pronounced, with strongly agree sentiments expressed by 52 percent of sponsors whose provider does not offer advice compared to 42 percent of those whose provider does offer advice. (See Figure 4.) Regardless of whether their DC provider offers one-on-one advice to plan participants, sponsors of large plans are more likely than sponsors of small plans to strongly agree that independent advice is important. For example, among sponsors whose DC provider offers one-on-one advice, half (50%) of the large sponsors strongly agree that it is important for plan participants to receive independent advice, compared to just under four in ten of small and medium-sized sponsors (39% each). Similarly, among sponsors whose DC provider does not offer one-on-one advice, nearly six in ten (58%) large sponsors strongly agree that independent advice is important, compared to just over four in ten (42%) small sponsors. (See Figure 5.) 10 AARP, Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants, September The wording of the statements in the separate survey of plan participants varied somewhat from the wording of the statements in the survey of plan sponsors. See Appendix E. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 14

20 Figure 4: Agreement with "It is important for DC plan participants to receive advice from an independent advisor who does not make money from the plan's investments." Agreement with "It is important for DC plan participants to receive advice from an independent advisor who does not make money from the plan's investments." Agree (strongly or somewhat) 77% 76% 80% Disagree (strongly or somewhat) No Answer 15% 18% 10% 8% 7% 10% Total (n=3,010) DC Provider offers one-on-one advice (n=1,966) DC Provider does not offer one-onone advice (n=1,044) 0% 20% 40% 60% 80% 100% Q4. As you may know, when giving advice or consultation about investments to individual plan participants, DC providers are not required by law to give information that is in the best interest of the plan participants. Please indicate your agreement with each of the following statements. [see statement displayed in chart title] Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 15

21 Figure 5: "Strongly Agree" that it is important to receive advice from an independent advisor who does not make money from the plan's investments. "Strongly Agree" that it is important to receive advice from an independent advisor who does not make money from the plan's investments. (by Availability of DC Provider Advice and # of Plan Participants) % who "strongly agree" 1,000 or more participants (n=554; n=373*) 50% 58% participants (n=767; n=367*) 39% 54% DC provider offers one-onone advice Less than 100 participants (n= 636; n=300*) 39% 42% DC provider does not offer one-on-one advice Total (n=1,966; n=1,044*) 42% 52% 0% 20% 40% 60% 80% 100% Q4. As you may know, when giving advice or consultation about investments to individual plan participants, DC providers are not required by law to give information that is in the best interest of the plan participants. Please indicate your agreement with each of the following statements. [see statement displayed in chart title]. *For each size group, the n displayed first represents the base for the % of respondents in that size group whose DC providers offers one-on-one advice, while the n displayed second represents the base for the % of respondents in that size group whose DC providers do not offer such advice. Potential for Conflict of Interest in Provider Advice Compared to sponsors whose DC provider offers one-on-one advice to plan participants, sponsors whose provider does not offer such advice are more likely to agree that such advice could be influenced by the money that the provider makes from the plan s investments. Specifically, agreement was expressed by two in three (67%) sponsors whose provider does not offer this advice, compared to just half (50%) of sponsors whose provider does offer advice. (See Figure 6.) Agreement with this sentiment did not vary by plan size. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 16

22 Figure 6: Agreement with "Investment advice that DC providers offer to plan participants may be influenced by the money that the provider makes from the plan's investments." Agreement with "Investment advice that DC providers offer to plan participants may be influenced by the money that the provider makes from the plan's investments." Agree (strongly or somewhat) 56% 50% 67% Total (n=3,010) Disagree (strongly or somewhat) 23% 36% 43% DC Provider offers one-on-one advice (n=1,966) No Answer 8% 7% 11% DC Provider does not offer one-onone advice (n=1,044) 0% 20% 40% 60% 80% 100% Q4. As you may know, when giving advice or consultation about investments to individual plan participants, DC providers are not required by law to give information that is in the best interest of the plan participants. Please indicate your agreement with each of the following statements. [see statement displayed in chart title] Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 17

23 D. Choosing Between Conflicted Advice and No Advice At All In order to gauge the degree to which plan sponsors would be willing to consider conflicted advice when it comes to their own personal finances, we asked respondents to tell us whether they would prefer to receive investment advice about their own retirement investments from someone who may make money from the investments or receive no investment advice at all. Essentially, we hoped to determine whether respondents viewed plan provider advice, despite its limitations, as better than nothing. In response, just over half (55%) of respondents said that they would choose investment advice from someone who may make money from the investments I choose, while slightly more than one in four (28%) expressed a preference for no investment advice at all and roughly another one in six either selected don t know (13%) or did not answer the question (4%). Comparison to Participant Survey When answering a similar question about preferences for no advice versus conflicted advice, plan participants were less likely than plan sponsors to say they would choose conflicted advice and more likely to say that they don t know. Specifically, just four in ten (39%) plan participants would choose investment advice from someone who may make money from the investments I choose, while approximately three in ten (31%) said they would choose no investment advice at all, and another three in ten (29%) said they don t know which they would choose. 12 Differences by Whether DC Provider Currently Offers One-On-One Advice and by Plan Size Compared to respondents whose DC provider does not offer one-on-one advice, those whose DC provider does offer such advice were more likely to say that they would choose conflicted advice over no advice (58% of those whose provider offers advice vs. 48% of those whose provider does not offer advice). (See Figure 7.) However, regardless of whether the respondent s DC provider currently offers one-on-one advice, large sponsors were less likely than smaller sponsors to choose conflicted advice over no advice. For example, among sponsors whose DC provider offers advice, just under half (49%) of large sponsors chose conflicted advice, compared to roughly six in ten small sponsors (59%) and medium-sized sponsors (63%). Similarly, among sponsors whose DC provider does not offer advice, just under four in ten (39%) large sponsors chose conflicted advice, while over half of small sponsors (56%) and medium-sized sponsors (52%) did so. (See Figure 8.) 12 AARP, Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants, September Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 18

24 Figure 7: Preference for Investment Advice from Someone with a Conflict of Interest vs. No Investment Advice At All Preference for Investment Advice from Someone with a Conflict of Interest vs. No Investment Advice At All Investment advice from someone who may make money from the investments I choose 55% 58% 48% Total (n=3,010) No investment advice at all Don't know No Answer 4% 3% 6% 13% 13% 13% 28% 26% 33% DC Provider offers one-onone advice (n=1,966) DC Provider does not offer one-onone advice (n=1,044) 0% 20% 40% 60% 80% 100% Q5. Now, think about your own personal retirement finances. If you could only choose between receiving investment advice about your own retirement investments from someone who may make money from the investments you choose or receiving no advice at all, which would you prefer? Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 19

25 Figure 8: Preference for Investment Advice from Someone with a Conflict of Interest Preference for Investment Advice from Someone with a Conflict of Interest (by Availability of DC Provider Advice and # of Plan Participants) 1,000 or more participants (n=554; n=373*) 39% 49% DC provider offers one-onone advice participants (n=767; n=367*) 52% 63% DC provider does not offer one-on-one advice Less than 100 participants (n= 636; n=300*) 56% 59% 0% 20% 40% 60% 80% 100% Q5. Now, think about your own personal retirement finances. If you could only choose between receiving investment advice about your own retirement investments from someone who may make money from the investments you choose or receiving no advice at all, which would you prefer? Chart shows only those respondents selecting investment advice from someone who may make money from the investments I choose. *For each size group, the n displayed first represents the base for the % of respondents in that size group whose DC providers offers one-on-one advice, while the n displayed second represents the base for the % of respondents in that size group whose DC providers do not offer such advice. Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 20

26 E. Support for Enhanced Requirements Nearly nine in ten (89%) respondents said that they would favor (68% strongly, 21% somewhat ) requiring DC providers to give advice that is in the best interest of plan participants. Just 7 percent oppose this requirement, while 5 percent gave no answer. (See Figure 9.) Support was similar for requiring clear explanations. Specifically, nearly nine in ten (88%) respondents said that they would favor (59% strongly, 29% somewhat ) requiring DC providers to clearly explain to plan participants if the provider s advice is not obligated to be in the participant s best interest. (See Figure 10.) Comparison to Plan Participant Survey AARP s separate survey of plan participants revealed similar levels of widespread support for each of these requirements. Specifically, 93 percent of plan participants said that they would favor requiring DC providers to give advice in the best interest of participants; 89 percent said that they would favor requiring DC providers to clearly explain if the provider s advice is not obligated to be in the participant s best interest. 13 Differences by Whether DC Provider Currently Offers One-On-One Advice Requiring DC Providers Advice to be in the Best Interest of Participants Sponsors whose DC provider offers one-on-one advice are especially likely to be in favor of requiring DC provider advice to be in the best interest of plan participants. Specifically, over nine in ten (92%) sponsors whose DC provider offers such advice favor (strongly or somewhat) requiring this, compared to just over eight in ten (83%) sponsors whose DC provider does not offer advice. In fact, among sponsors whose DC provider offers advice to plan participants, nearly three in four (73%) strongly favor requiring advice to be in the plan participant s best interest, compared to just under six in ten (59%) of those whose provider does not offer such advice. (See Figure 9.) Support for such a requirement did not vary by the size of the sponsor. Nearly nine in ten sponsors in each of the three size groups are in favor of requiring provider advice to be in the best interest of plan participants. 13 AARP, Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants, September Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 21

27 Requiring DC Providers to Clearly Explain Limitations Support for requiring DC providers to clearly explain to plan participants if their advice is not required to be in the participant s best interest did not vary by whether the DC provider currently offers advice. (See Figure 10.) Nor did support for clear explanations vary by plan size. Figure 9: Support for Requiring DC Provider Advice to be in the Best Interest of Plan Participants Support for Requiring DC Provider Advice to be in the Best Interest of Plan Participants DC Provider does not offer one-on-one advice (n=1,044) 59% 24% DC provider offers one-on-one advice (n=1,966) 73% 19% Strongly favor Somewhat favor Total (n=3,010) 68% 21% 0% 20% 40% 60% 80% 100% Q6. When giving advice or consultation about investments to individual plan participants, some people think that DC providers should be required to give advice that is in the best interest of the plan participants. Would you favor or oppose such a requirement? Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 22

28 Figure 10: Support for Requiring DC Providers to Clearly Explain if the Provider Is Not Obligated to Give Advice in the Best Interest of Participants Support for Requiring DC Providers to Clearly Explain if the Provider Is Not Obligated to Give Advice in the Best Interest of Participants DC Provider does not offer one-on-one advice (n=1,044) 60% 26% DC Provider offers one-onone advice (n=1,966) 59% 30% Strongly favor Somewhat favor Total (n=3,010) 59% 29% 0% 20% 40% 60% 80% 100% Q7. When giving advice or consultation about investments to individual plan participants, some people think that DC providers should be required to clearly explain to plan participants if the provider is not obligated to give advice that is in the best interest of the plan participants. Would you favor or oppose such a requirement? Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 23

29 Who Should Be Responsible for Imposing Such Requirements on DC Providers? Sponsors who indicated that they favor placing the above requirements on DC providers were asked who they believe should be responsible for imposing such requirements. Respondents were presented with the following response options: government, employers, government and employers, someone else, or don t know. Reactions were mixed, with roughly one in three (33%) sponsors who favor such requirements suggesting that the responsibility for imposing the requirements should rest with employers alone, and roughly another one in three (32%,33%) suggesting that employers and government should share responsibility. Fewer (11%,14%) think that government alone should be responsible. Nearly one in five said that they don t know. (See Figure 11.) Comparison to Plan Participant Survey In our separate survey of plan participants, plan participants expressed views very similar to those of plan sponsors on the matter of who should be responsible for imposing these requirements. Specifically, among plan participants who favor these requirements, roughly one in three believe that employers alone should be responsible for imposing these requirements on plan providers, and roughly another one in three believe that both employers and government should share responsibility. Only roughly one in six believe the responsibility should rest solely with government, while another one in seven said that they don t know AARP, Fiduciary Duty and Investment Advice: Attitudes of 401(k) and 403(b) Participants, September Fiduciary Duty and Investment Advice: Attitudes of Plan Sponsors 24