FT 401 analysis: advisers nudge clients to increase their savings

Business has been good for the top advisers who consult on how employer-sponsored retirement plans should be designed. A lot of money is at stake, with $7.3tn in defined contribution retirement programmes such as 401k plans.

Those in the FT Top 401, the Financial Times’ third annual list of leading US DC plan advisers, manage an average of $1.6bn in assets, thanks to 5 per cent growth over the past year.

These elite advisers have enjoyed this growth even as Americans have been worrying about their retirement plans. The Employee Benefit Research Institute, a non-profit group, finds that three in 10 Americans feel stressed about planning for retirement.

Individual states are trying to mitigate the unease among workers by coming up with ways to offer their own retirement savings schemes. Another response — the Department of Labor’s fiduciary rule, which is aimed at raising the bar for advice to retirement plans — has gone partly into effect while facing potential changes.

The FT 401 represents the best advisers who specialise in advising DC plans offered by corporate, non-profit and government employers. DC plans account for an average of 74 per cent of the FT 401 advisers’ overall client assets. They have an average of 19 years’ experience with DC plans.

The growth in the assets overseen by these specialists is a result of several factors.

First, the US stock market, which makes up a large portion of retirement investments, had another standout year in 2016 with 12 per cent growth — including dividends — in the S&P 500 index of the largest listed companies.

Second, elite plan advisers benefited from employers seeking proven expertise, so the average number of DC plan clients per FT 401 adviser rose from 50 to 55.

The FT 401 advisers hail from Washington and 38 states. States with higher populations, and higher concentrations of wealth, understandably have more advisers on the list. California leads the way with 46 advisers, followed by New York (30) and Texas (26).

Advisers are increasingly shaping DC programmes to nudge Americans towards saving for retirement. On average, 46 per cent of clients advised by the FT 401 automatically enrol new employees in their DC plans unless they opt out. This is up from 37 per cent of clients as reported by the 2015 FT 401.

Similarly, 30 per cent of their client plans each year automatically increase the portion of pay that workers contribute to the DC plans — that is up from 25 per cent of plans as reported by the 2015 FT 401.

Both these automated features increase the amount of money that is being advised, but the steps are mainly intended to boost the likelihood that employees have a decent nest egg when they hit retirement age.

To better juggle the complicated nature of this business, plan advisers are increasingly working in teams. Like last year, 82 per cent of the FT 401 are either members or leaders of teams. Those teams are gradually growing to handle more plans and more complicated services.

Among the teams in the FT 401, the average number of professionals dealing with employer clients rose from six in 2015 to seven in 2016 and eight this year.

Retirement plans are becoming more complicated, even for advisers with experience and teammates. The FT 401 provides a snapshot of leaders and best practices.