Improving financial wellness programs is the top priority among smaller defined contribution plans this year, according to a survey of DC consultants and advisers published April 19 by Pacific Investment Management Co. LLC.
When asked what are their clients' top five priorities this year, 73% of the respondents cited improving financial wellness, 55% identified navigating new regulations and 45% cited evaluating investment fees as the top answers among 16 choices.
These results were part of the 15th annual PIMCO survey, which was conducted in January and February.
The survey contains responses from 11 consulting and advisory firms with DC assets under advisement of $10 billion or more for a total of $1.2 trillion.
PIMCO calls these firms aggregators, defining them as independent DC-focused advisory firms with shared resources. The survey notes that 90% of the aggregators estimated that their clients had median DC assets of $100 million or less.
(By comparison, a concurrent PIMCO survey of larger plan consultants contains responses from 29 firms with DC assets under management of $10 billion or more for a total of $5.5 trillion in AUM. Seventy-three percent of these consultants estimated that clients had median DC assets of more than $100 million.)
Not surprisingly, smaller plans can have different needs and interests vs. larger plans.
For example, the top client priorities for larger DC plans were reviewing target-date funds, evaluating investment fees, evaluating administrative fees and evaluating retirement income. Improving financial wellness programs ranked 10th.
The larger-plan market "has greater ability to influence fees, and has more robust benefits," said Joseph Healy, senior vice president, account manager and specialist in the defined contribution practice in PIMCO's New York office, commenting on the institutional consultants comments.
For smaller plans, "there has not necessarily been as robust benefits, more diversity in the choice of a default and less ability to exert pricing power," he added.
The dichotomy between large and smaller plans extended to PIMCO asking consultants and advisers to identify the single top priority among "leading edge" clients — those most likely to be first adopters of new products or services.
For the smaller plans, 27% of the aggregators cited considering or reviewing health savings accounts, followed by a tie between minimizing fiduciary liability and evaluating retirement income, both at 18%.
By contrast, among large-plan leading edge clients, 41% of consultants cited evaluating retirement income and 19% mentioned setting up a retirement tier — a combination of tools, products and services to help participants nearing, at or in retirement.
All other priorities were less than double digits, and HSAs received no votes.
The PIMCO survey also remarked about the "clear divergence" between clients of aggregators and institutional consultants regarding their recommendations for retirement income solutions.
When asked what retirement income strategy they would most likely recommend, 60% of aggregators cited in-plan annuities, 50% recommended managed accounts, 40% selected stable value and 40% endorsed target-date funds with embedded income guarantees. The firms were allowed to pick as many as three strategies out of 11 choices.
"Aggregators tend to have more of a comfort level with annuities and guarantees as many have wealth management practices which include IRA rollovers from DC plans," Mr. Healy said.
Institutional consultants' top choices were a target-date fund followed by a three-way tie among target-date funds with embedded guarantees, income-focused fixed income investments and target-date funds with a predetermined payout for a specific period of time.
"The largest plans advised by institutional consultants almost exclusively rely on target-date funds," said Mr. Healy, adding that the large-plan consultants' response to the survey "is a natural outcome" of their experience.
