What Do Employers Really Want From Their 401k Consultant?

While the conventional wisdom that employers want a plan that is easy to administer and costs less, may still be true, it’s not nearly as nuanced as the reality of what employers look for in 401k consultants. Employers and employees’ needs are in alignment most of the time in what they want from those consultants and advisors, but taking note of what employees want (and need) may go a long way to ensuring employer satisfaction with their choice of 401k consultant.

Employers still list the ease of plan administration as a top concern. But many now want their consultant to have an investment policy statement that indicates how and why investments are chosen. Even more important, employers want the consultant to show that the investment policy is followed.

While employers complain about the mountains of paperwork involved in plan administration, their employees complain about not understanding the offerings. Employees who feel that they don’t understand a plan or its benefits may reduce the amount of assets in the plan by not enrolling at a maximum contribution or not enrolling at all. Additionally, most employers and employees want to streamline the onboarding process or make auto enrollment a top priority.

Recently surveyed employers stated that plan cost was a top priority. They wanted consultants who would help lower the overall costs of the plan, including help in reducing participant fees. The balancing act between plan fees and participant fees has been more sharply noted by employees in surveys, even though there is a greater understanding of how plan and individual fees are charged.

So what needs are new? Customer service tops the list.

Employers and employees both noted that while they rely heavily on newsletters from their plan consultants, they don’t necessarily trust the information in those newsletters. Employers and employees both note that the best way to build trust is through customer service methods that seem like no-brainers: Basics like answering the phone and having one-on-one time with representatives from the consultant’s company go far. This holds true even if the consultant can’t get to every employee: The talk around the water cooler by those employees that did meet with a representative from the consultant will increase the favorable view of the company.

Size of the assets under the plan also impacts what the employer wants in terms of customer service. Employers with plans with assets over $25 million want advisors who can help in plan design, fiduciary support, finding additional benefits and investment selection.

What do the employees want? Employees want guidance from start to finish. Surveys show that employees want help in enrollment, not only with the paperwork but also with choosing funds. And, other surveys show that employees who manage their investments themselves tend to choose overly popular stocks initially and fail to reassess and reallocate later. In addition, they fail to diversify properly and lack understanding of investment risk from the get go. While surveys of recent enrollees also show that employees want to spend less time managing their portfolios, other surveys show that more than half of employees enrolled in 401k’s don’t know if they are on track to reach their retirement goals. The take away: Employees need guidance and education about their plans, but want to make their own choices.

Delivering that education and guidance also is an area of mismatch. Employees favor one-on-one education and interaction, whereas advisors often opt for collective education like webinars and classroom sessions. The one-on-one interaction needed to build trust also can improve how employees (and employers) understand the performance of the plan and advisor.

Targeting audiences is also essential. Those in the “millennial” age group may report higher levels of financial confidence, but actually lack experience in understanding the depth of involvement in choosing investment priorities and the length of the timeline involved in generating financial wealth. Millennials’ belief that they are financially savvy also leans towards one-on-one education over collective education so that they won’t tune out information based on their professed investment expertise. Surveys of millennials who run their own businesses show that more than two-thirds of them work collaboratively to generate agendas for their meetings with financial advisors.

Employers may want one-on-one time to meet with plan advisors to streamline paperwork, onboarding, get advice on design, ensure compliance with investment policy statements and a host of other trust-based needs. Employers also want employees to understand their plan and trust their plan advisors. The center point of both groups’ needs: solid customer service and easier administration.