Investors who participate in a defined contribution 401(k) with an eye toward retirement can use a financial advisor aligned with that DC plan provider or an advisor from outside the provider.
The difference is a point of personal preference. It is the difference between having one point of contact for investment considerations and having more than one.
But research shows that investors who use their DC plan provider for their non-DC investments are more satisfied with their advisor service than those investors who go beyond the plan provider for advice.
And the difference between the satisfaction levels in those two cases is extreme.
Spectrem’s Advisor Usage Among DC Plan Participants examines the relationship between plan participants and advisors who handle investments beyond the DC plan. It shows there is a difference between investors who go outside the plan provider for advice and those participants who get advice from the company sponsoring the DC plan.
“This topic is the overriding purpose of the study, and can be useful to firms which support DC plans as well as advisors and providers who work with investors who have DC plans with other firms,’’ said Spectrem president George H. Walper Jr. “The resulting research indicates that investors have a greater appreciation of their DC plan provider than they do outside advisors and providers, which is an indication of the value of the DC plan relationship.”
The split between DC plan participants who stay with their plan’s provider and those who go outside the plan provider for advice is nearly even. Thirty-nine percent of DC plan participants use an advisor outside of their plan’s provider for investment advice, while 32 percent use the plan provider for advisor assistance. Almost 30 percent of plan participants do not use an advisor for investments beyond their DC plan.
Asked whether they were satisfied with their primary financial advisor, those DC plan participants who use their DC plan provider for other investments listed 93 percent satisfaction. Those DC plan participants who use an outside advisor for non-plan investments rated their overall satisfaction of their primary advisor at 31 percent.
That indicates that advisor satisfaction among participants using an advisor from the same firm that monitors their DC plan is three times higher than the satisfaction of participants who go outside their DC plan for investment advice.
That level of satisfaction plays itself out in terms of investors who are willing to refer their advisor to others. Participants who use the same provider for investment advice outside of their DC plan are twice as likely (28 percent) to refer their advisor as those who go outside the plan for advice (13 percent).
Of those plan participants who do use outside advisors, 59 percent use a Mutual Fund company representative as their primary advisor. Twelve percent use a Full Service Broker and 8 percent use a Discount Broker as their primary advisor.
Top Takeaways For Advisors
Although many investors use more than one advisor, they often do so for safety reasons, not wanting to put all of their eggs in the same basket. Many investors are satisfied working with one professional or provider. DC Plan participants who want to develop a portfolio of investments outside of their retirement account are likely to consider the firm which is processing the DC plan. Those firms already have a leg up on the competition and should try to cultivate that relationship beyond the DC plan.
At the same time, providers and advisors working with a client who has a DC plan with another provider needs to know everything they can about the amount of funds in the account and the level of participation the investor has in it. They can assist an investor in realigning investment funding for a greater profit while maintaining the retirement plan as an income stream for later.
©2018 Spectrem Group