Top priority for smaller DC plans: improving financial wellness programs

Improving financial wellness programs is the biggest priority for smaller defined contribution sponsors, according an survey published May 23 by Pacific Investment Management Co. LLC of consultants and advisers that cater to these plans.

When asked about clients' top priorities for this year, 70% of the respondents cited wellness programs as the first choice, as it was in last year's survey. The PIMCO survey contains responses of 10 consultants and advisers with $1.2 trillion in combined assets under administration.

Ninety percent of the plans served by the respondents — which PIMCO calls aggregators, defining them as independent DC-focused advisory firms with shared resources — had clients with median DC assets of $50 million or less. The other 10% had DC clients assets between $51 million and $100 million.

The continued emphasis on financial wellness reflects the need by smaller plans to enhance such services because they lack the resources of larger DC plans, said Rene Martel, Newport Beach, Calif.-based managing director and head of retirement at PIMCO, in an interview. The larger plans "don't seem to need as much improvement," Mr. Martel said.

In fact, a concurrent PIMCO survey of consultants to larger DC plans, also published May 23, found that improving financial wellness among their clients ranked 19th and last as a priority for 2022. Only 4% cited financial wellness program improvement, down 21 percentage points from last year's survey.

That survey of 26 consultants to larger plans covered clients with a total $5.7 trillion in assets under administration. These clients' top priorities were reviewing target-date funds (60% of responses), evaluating retirement income solutions (56%) and evaluating investment fees (44%).

Evaluating and designing financial wellness programs placed near the top of aggregators' views of highest growth services for clients. Of 11 choices, financial wellness (30% of responses) placed fourth behind discretionary oversight of investment selection (50%), record-keeping searches (40%) and total plan cost/fee studies (40%).

The PIMCO surveys noted that aggregators embrace adviser managed accounts: 80% offer them vs. 4% of large-plan consultants. Ten percent of aggregators don't recommend clients use adviser managed accounts, while 35% of large-plan consultants don't recommend them and another 31% said they are unlikely to offer them. Twenty-three percent said they were likely to offer adviser managed accounts within three years and 8% said they would likely offer them within 12 months.

The difference between managed accounts offered in large plans and adviser managed accounts is that record keepers work with managed account providers for the former and advisers work with the providers for the latter.

Adviser managed accounts "can be a revenue stream for aggregators," said Mr. Martel, adding that this might be one reason why aggregators had more favorable views of managed accounts than did large-plan consultants:

• When asked whether managed accounts "are superior to target-date funds in generating income in retirement," 22% of aggregators agreed somewhat, 11% disagreed somewhat and 67% were neutral.
• When asked whether managed accounts "produce more value, net of fees, than other similar approaches such as target-date funds," 56% agreed somewhat, 11% disagreed and 33% were neutral.
• When asked whether participants "typically add and keep current personal data in managed account tools, 33% agreed strongly or agreed somewhat, 22% disagreed somewhat and 44% were neutral.
• When asked whether record-keeping systems "contain sufficient personal data to allow for personalized portfolios without the need for participant engagement," 55% agreed strongly or agreed somewhat, 22% disagreed somewhat and 22% were neutral.

By contrast, the PIMCO survey of large-plan consultants found greater disappointment in managed accounts. Excluding neutral responses, the survey said 42% of respondents disagreed or disagreed somewhat that managed accounts produce more value than target-date funds vs. 23% who agreed somewhat. Twenty-seven percent disagreed or disagreed somewhat that the managed accounts are better than target-date funds in providing income in retirement vs. 15% who agreed somewhat.

Also, 57% of large-plan consultants disagreed or disagreed somewhat that record keepers have sufficient participant data to help managed accounts achieve their goals vs. 23% who agreed somewhat. Sixty-one percent disagreed or disagreed somewhat that participants provide enough data for managed accounts vs. 8% who agreed somewhat.