Click to edit Master title style New Ballgame for 401k Plans Is Your Plan Advisor an Asset or Liability? Speakers: Ty Parrish Senior ERISA Consultant Blue Prairie Group Michael Rom Senior ERISA Consultant Blue Prairie Group 1
Agenda» What are the dramatic shifts transforming ERISA retirement plans?» How are leading plan advisors adapting in the new environment to help plan sponsors create successful plans?» What s reasonable compensation for advisory services? 2
Big Shift in Expectations 35 year report card Pretty Mixed Results Strengths» Dominant savings vehicle» Accumulation of assets» Individual control and benefit Weaknesses» Failure to provide adequate retirement security» Difficulty converting savings into secure, predictable lifetime income» Participant burden and responsibility (poor decisions, ill equipped) 3
Shift in Metrics Defining Success The Early Years 1980s to Early 1990 s Rapid Growth 1990s to Early 2000 s Market Maturity 2010 to Present Awareness» Good to have» No transparency» No oversight» Delivered by benefit brokers We offer a savings plan Major Expansion» Must have» Proprietary» More is better» Rise of the investment consultant Better investment performance 4 Extreme Makeover» Massive government activism and scrutiny» Increased litigation & complex environment» Emergence of specialized ERISA advisory firms» Simplicity of plan design Holistic, being defined
Fundamental Shift in Sponsor Engagement 5
New DOL Rule Focus on Advisory Component» Fiduciary standard creates uniform standard of care (client best interest)» Eliminate or disclose potential conflicts» Prohibits commissions unless disclosed and adhere to fiduciary standard» Charge no more than reasonable compensation» Enforcement? 6
I have a Plan Advisor What s all the fuss?» Increased Litigation» DOL Regulation and Audits» Delayed Retirements» Impact of Behavioral Finance Is your Advisor Adapting? 7
What Employers Want» Minimize my Risk» Minimize my Workload» Help us Build a Word Class Retirement Plan» Help our Employees Retire on Time» Be our Trusted Advisor on All Aspects of our Retirement Plan 8
How Specialists Are Making Difference Holistic Approach Optimized Investment Menus Foundation of Strong Fiduciary Governance Fiduciary Advocate Focused on Participant Outcomes Behavioral Finance in Plan Design Full Transparency 9
Best Practice to Minimize Liability Benchmark All Service Provider Fees and Services Every 4-6 years Every 2-3 years Every 1-2 years 10
Administrative Cost (bps) Best Practice to Minimize Liability Understand Your Fee Structure UNLEVEL FEES STRUCTURE Cost of Recordkeeping LEVELIZED Cost of Recordkeeping A B C D E F G H Participants A B C D E F G H Participants 11
Best Practice to Increase Fiduciary Protection Conduct a Fiduciary Review Fiduciary Duties:» Follow the Plan Document» Select and Monitor Service Providers» Select, Monitor and Diversify Investments» Avoid Unnecessary Expenses» Make Informed Decisions Document, Document, Document! 12
Best Practice to Improve Retirement Readiness Opt-out Plan Design Opt-in vs Opt-out 12% 99% Donate Organs Donate Organs Source: American Century Participant Study 2016 13
Best Practice to Improve Retirement Readiness Auto Escalation This illustration shows the impact of adding an auto escalation feature of 1% per year up to 12% of pay for a 35 year old employee with a $50,000 salary and a 3% contribution. Source: BlackRock Future in Focus. 14
Best Practice to Improve Retirement Readiness Target Date Fund Re-enrollment STANDARDIZED FIVE-YEAR RETURNS: HIGHS, LOWS AND MEDIANS BY INVESTMENT STRATEGY 30% 25% 25.0% 25.5% 20% 18.8% 15% 10% 5% 10.0% 14.2% 13.3% 11.7% 0% 1.8% -5% -2.3% Target Date Funds Core Menu Brokerage Window Source JP Morgan Investment Management as of 12-31-16 15
Evolution of Advisory Fees Commission arrangements have dropped dramatically over the past decade from 75% to less than 36% today. PAST PRESENT» Assets Based Commissions or Fees» Hidden in Investments no connection to services and potential for excessive compensation» Revenue Sharing» Flat Fee Basis» Complete Transparency direct relationship to services provided» Zero Revenue Sharing 16
What s a Reasonable Fee to Pay Your Advisor? Assets (Millions) *Low Range *High Range $ 10 MM $22,500 $29,000 $ 30 MM $31,000 $60,000 $ 50 MM $29,000 $70,000 $ 70 MM to 90 MM $40,000 $104,000 $ 100 MM to150 MM $39,000 $105,000 $ 150 MM to 200 MM $42,000 $120,000 17
Wrap Up» Dramatic shifts transforming ERISA retirement plans» How leading plan advisors adapting to help plan sponsors create successful plans» Defining What s reasonable compensation for advisory services 18