Advisors account for a 20-point difference between satisfaction levels of small employer plan sponsors that use financial advisors compared to small plan sponsors that eschew advisors, according to a new survey.
The survey found that 61 percent of small plan sponsors that work with a financial advisor are “very satisfied” with their 401(k) plan overall.
That compares to 40 percent of small plan sponsors that don’t use a financial professional, and report being “very satisfied” with their defined contribution plans overall.
“Small-plan sponsors are increasingly realizing the value of working with third-party support services and financial professionals for outsourced solutions that help save time and mitigate fiduciary risks,” said Douglas Dubitsky, vice president at Guardian Retirement Solutions.
Results appeared in a study titled “The Small Plan 401(k) RetireWell Study: What’s Working and Not Working for Small Business.”
The research was conducted by the Stamford, Connecticut-based consulting firm Brightwork Partners and sponsored by Guardian Insurance & Annuity, a provider of retirement plans.
Previous research conducted by other companies has highlighted the key role played by advisors in defined contribution plans. Employees as well as employers say they feel better off when advisors are involved in retirement planning decisions.
While few would question the wisdom of putting funds aside for future security, some critics of the defined contribution system as currently structured have questioned the costs of advisors and how much those costs eat into investors’ returns.
The survey found that 46 percent of businesses surveyed did not offer a retirement plan because they were too expensive.
Respondents cited fees, administrative expenses and resources necessary to run the plans, and the employer match as reasons not to participate in defined contribution plans. Respondents also cited confusion surrounding fiduciary responsibilities on the part of the plan sponsor.
Brightwork’s research also found a big opportunity for financial advisors as nearly 30 percent of business owners did not know which type of plan was best suited for their company, Guardian said.
Small plan sponsors working with an advisor also are more knowledgeable about plan requirements, and offer plans that are better designed, the survey also found.
Even if high costs detract some small employers from setting up a defined contribution plan, 58 percent of respondents said they were interested in setting up a plan within the next three years.
The online survey was based on interviews with 451 senior executives at for-profit organizations with between 25 and 249 employees in business three years or more. The survey was conducted between Nov. 12 and Dec. 14, 2013.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].