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CapTrust Plan Sponsor Strategic Research Report, Third Quarter 2012 (PDF)

Articles include: MAP-21 Implications for Defined Benefit Funding Strategies; A Three-Step Approach to Nonqualified Plan Financing; Recent Conversations With Plan Participants; Navigating Bonds in Today's Low-rate Environment.

Independent Financial Advisor Fee Comparison: All-In Costs

"[T]he reality is that the portion of a financial advisor's fees allocable to investment management is actually not that different from robo-advisors now, suggesting there may not be much investment management fee compression on the horizon. At the same time, though, financial advisors themselves appear to be trying to defend their own fees by driving down their all-in costs, putting pressure on product manufacturers and platforms to reduce their own costs.... [E]ven as financial advisors increasingly shift more of their advisory fee value proposition to financial planning and wealth management services, advisors are still struggling to demonstrate why financial planning services should command a pricing premium in the marketplace."

Conducting an Effective Advisor RFP Process (PDF)

"[T]he advisor RFP appears to be on a fast track to become the preferred method for conducting an advisor search or documenting that an existing advisor is qualified to meet an individual plan's specific needs.... [The authors] see four primary plan sponsor motivations for engaging in an advisor RFP process: [1] Plan changes over time.... [2] Increased fiduciary burden.... [3] Market intelligence.... [4] Formality of process."

Evaluating Your Financial Advisor

"This year's evaluation might be a bit different from most because of the significant volatility we experienced in the markets.... Learn exactly what you are paying ... Discuss fee transparency ... Understand your investment costs ... Determine whether your advisor is a fiduciary ... Get a list of the services you should be receiving ... Check your advisor's background ... Make sure you are getting leading-edge advice ... Confirm that your advisor has no conflicts of interest ... Check the marketplace[.]"

BICE: Financial Advisors Beware

"[The DOL's Best Interests Contract Exemption (BICE)] can result in a misalignment of the interests of the firm and those of its advisors, for the firm can receive more compensation while the advisor's compensation generally must not vary ... Over time, the economic incentives present will result in pressures placed upon advisors by their firms to not act in the best interests of the client ... In the competition for clients, firms that use fee-based accounts will possess a huge marketing advantage over firms that utilize BICE."

What Do Plan Participants Consider When Choosing a Financial Advisor?

"[F]or nearly nine-in-ten (89 percent) of retirement plan participants, honesty and trustworthiness are the most important criteria in choosing a financial advisor. Eighty-five percent of retirement plan participants surveyed ... place the highest premium on a financial advisor's transparency and being kept in the look on what they are doing in regard to their investments. For eight-in-ten, a financial advisor's investment track record and fees or commissions charged are the most important factors in choosing an advisor. Other factors retirement plan participants consider important when choosing an advisor include having access to products from a variety of different companies (73 percent), website and online services offered (63 percent) and the renown of the financial advisor's brand or company (61 percent)."

More Americans Using Financial Advisors, Want Advice to Be in Their Best Interest

"Consumer use of financial advisors has increased significantly in the last five years from 28 percent in 2010 to 40 percent in 2015 ... 9 out of 10 Americans agree (with 76 percent strongly agreeing) that when they receive investment advice from a financial advisor, the person providing the advice should put the consumers' interests ahead of theirs and should have to tell consumers up front about any conflicts of interest that could potentially influence that advice.... Although more people use financial advisors, a majority (63 percent) believe that current laws do not do enough to protect consumers from being taken advantage of in the financial markets."

Most Financial Advisors Don't Understand Fiduciary Best Practices

"Among the questions respondents were asked was whether they acknowledged fiduciary responsibility in writing. Of the advisors who say they acknowledge a fiduciary status for all clients, 35% got a 'C' or less for their overall fiduciary index grade. Of the advisors who say they acknowledge fiduciary status for some clients, 68% got a 'C' or less. And of the advisors (brokers) who say they do not acknowledge fiduciary status, 90% got a 'C' or less. 'There's a disconnect between principles and practices,' says [one of the survey's authors,] noting the survey reveals that a number of advisors believe they're acting in principle to a fiduciary standard but in reality don't understand the practices."

Financial Advisors Have New Reasons to Review Fiduciary Practices and Liability Insurance

Excerpt: The [LaRue v. DeWolff Supreme Court] case adds to the litigation concerns that threaten to chill growth of advisor-sold 401(k) plans to small- and mid-sized businesses, an increasingly productive area for many financial advisors. At Fidelity alone, total record-kept assets in such plans stood at $21.2 billion at the end of 2007, an increase of 26% from the previous year. Several factors are helping to drive the growth in advisor-sold 401(k) plans, including the Pension Protection Act of 2006, which provided guidelines necessary to encourage plan sponsors to retain qualified fiduciary advisors and to define safe harbor procedures to insulate them from the liability associated with the advice.

Nine in Ten Consumers Believe Their Financial Advisor Puts Their Interests First

"Overall study results showed only 43 percent of defined contribution plan participants discussed the advantages and disadvantages of potential rollover actions with someone.... [P]articipants who regularly work with financial advisors are more likely to have discussed the advantages and disadvantages of potential rollover actions than those who do not work with a financial advisor (60 percent vs. 30 percent).... [W]hen working with a financial advisor to make the decision to roll the money into an IRA, 3 in 4 participants report that they continue to work with this advisor. This implies that the rollover transaction is usually not a one-time interaction but is instead undertaken in the context of a long-term relationship."

Financial Advisor Designations and What They Mean

"There are over 100 different financial advisor certifications, so it can be confusing to determine what these letters mean, and which advisor might be best for you based on these qualifications.... [Here are] some of the most common financial designations and what they mean for you."

401(k) Financial Advisors: Core Responsibilities and Risks

"What can an advisor do to actually help my business or retirement plan? What are the benefits? Who should I consider hiring for this? Is a 401(k) financial advisor even worth the money? And not all 401(k) financial advisors provide the same level of service or investment management responsibility."

Why Performance Fees Are Banned for Most Financial Advisors

"As financial advisors feel increasing pressure to differentiate themselves, a recently emerging trend for those who (actively) manage client portfolios is the idea of charging clients not an AUM fee that is a percentage of assets, but instead, a performance-based fee that is a percentage of upside (or outperformance of a benchmark index), where the advisor's fee is forfeited if he/she fails to achieve the required threshold or hurdle rate. Such a compensation structure would compel active financial advisors to eschew closet indexing and really, truly, try to outperform their benchmarks -- which can be a very compelling proposition to prospective clients."

Financial Advisors Implementing New DOL Rules

"87 percent of advisors are considering changes to how they do business.... 43 percent may plan to expand services offered to more holistic planning and 26 percent may plan to focus on non-qualified accounts.... Just 42 percent of advisors say they are aware of their firm's timeline for implementation or what training or support the firm will provide, while only a third (33 percent) are aware of their firm's new compliance procedures.... Only 23 percent of advisors are aware of their firms' plans with respect to adoption of the BICE to sell variable compensation products. At the same time, 78 percent identified the BICE as one of the greatest areas of impact to their business."

Working with a Financial Advisor Doubles Retirement Preparedness

"70 percent of those who work with a financial advisor are on track or ahead in saving for retirement, versus 33 percent of those not working with an advisor. Among people who have an advisor, more than a third had determined how much to save for retirement and half had contributed to an IRA; for people without an advisor, only 14 percent knew how much they'd need for retirement and 16 percent had contributed to an IRA[.]"

Baby Boomer and GenX Women: Retirement Readiness and the Role of Women Financial Advisors

"Their personal savings will be a significant source of retirement income, yet only half of Baby Boomer women with savings have $200,000 or more in retirement savings; only one-quarter of Generation X women have $100,000 or more saved for retirement.... Women prefer to work with women advisors, yet women represent a minority of the advisor community.... Women may not be 'connecting the dots' about a career as a financial advisor, and not recognize that many aspects of the job directly appeal to their own work-values."

Financial Advisors and the 'Halo Effect'

"Small plans managed by financial advisors are more likely to ... include the employer match, tools and calculators, target date retirement funds options, income replacement ratios based on plan balances, managed accounts for which participants pay extra for professional advice, and automatic step-up contributions.... Plans that work with an advisor see a 15 percent increase in the 'perception of success' ... compared to plan sponsors that don't work with advisors[.]"

Bank Does the Unthinkable: HSBC Moves Its Financial Advisors from Commissions to Salaries

"HSBC made the switch to align the compensation structure for advisors in the U.S. with those in the rest of the bank ... But observers suspect that there are other reasons for the shift. Some say the desire to more closely align client and advisor interests may have prompted the change. Without commissions, the fear or perception that advisors are 'spinning accounts' or suggesting products and services merely to increase their production is removed[.]"

Is the Fiduciary Standard the New Normal For Financial Advisors?

Highlights from a survey of investment advisors that is described in the linked article: "97% say investors don't understand the differences between brokers and investment advisers. 85% say the gap in professional knowledge between investors and advisors makes fiduciary advice much more important for ordinary investors. Almost two-thirds of all participants report to have a fiduciary relationship with their clients. 71% say a uniform fiduciary standard 'no less stringent' than what is currently required of registered investment advisers would raise the credibility of financial service providers. Nearly three-quarters do not believe that advisors are adequately knowledgeable and trained to practice under the fiduciary standard."

How Financial Advisors Actually Charge For Their Services

"[F]inancial advice has evolved with technological advancements and a greater focus on financial planning, with the Assets Under Management (AUM) fee emerging as the primary compensation model. Now, as financial advisers expand their services beyond traditional planning into more holistic, personalized advice, the very definition of financial advice continues to evolve. As a result, firms must continually reassess how they structure their fees to align with their growing range of services."