What 403(b) plans want from their advisor

Aug 14, 2018
By BlackRock
2018 BlackRock DC Pulse Survey

2018 BlackRock DC Pulse Survey

403(b) Report

Our second report from the 2018 DC Pulse Survey has good news and fresh insights for 403(b) advisors and their clients.

Leveraging decades of 401(k) best practices, 403(b) plans are now outperforming their 401(k) siblings in participant satisfaction by streamlining menus, driving engagement and sharpening plan design.

In BlackRock’s 2018 DC Pulse Survey:

BlackRock’s 2018 DC Pulse Survey

Evolution of 403(b) plans

Historically, 403(b) plans had an over-abundance of investment options, frequently at above average fee levels. The survey shows that today’s 403(b) plan sponsors are modernizing at a fast pace, and trimming options to offer high-quality investment menus.

Evolution of 403(b) plans

On average, 403(b) plans still offer more investment options than their 401(k) counterparts and may look to advisors for advice on continuing to refine their menus to mirror the simplicity of 401(k) plans.

403(b) plans are not just streamlining menus; they are taking a holistic view of how their investment options and plan design are encouraging appropriate diversification.

How participant investments are allocated

Embracing investment innovation

403(b) participants are more likely to have access to new strategies that leverage advancements in data and technology, such as smart beta and factor investing. Why? 403(b) plan sponsors feel motivated to keep current with industry trends, including more diversified and efficient investing approaches.

DC plans offering smart beta strategies

DC plans offering smart beta strategies

ESG in DC plans

403(b) participants work in schools, hospitals, non-profits and churches that have a significant impact on the communities they serve. 403(b) plan sponsors are not only more aware of ESG (Environmental, Social and Governance) strategies, but are more likely to offer sustainable investing options that align with their organization’s mission and values.

ESG in DC plans

Depending on population characteristics and company culture, 403(b) advisors may want to help their clients explore how sustainable investing and smart beta strategies align with their investment menu to help potentially drive greater engagement and savings levels.

Enhancing plan design

Keeping in mind the type of organizations that offer 403(b) plans, it’s not surprising that they often take a more paternalistic interest in their participants’ financial security. That may be why they were more likely to have taken action in the past two years to improve their plan defaults.

Enhancing plan design

Advisors of both 403(b) and 401(k) plans may find that BlackRock’s Future in Focus® tool can help them better understand the impact of plan design on their clients’ participants.

Deepening participant engagement

403(b) plan sponsors want their participants to be in the know and are heavily reliant on providers to deliver participant education and one-on-one advice. Today, 403(b) participants are more likely to value in-plan financial advice relative to 401(k) plan participants:

Attitudes toward financial guidance
403(b) vs. 401(k)

Attitudes toward financial guidance

This might be why 403(b) participants are more likely to stay the course with their investments, with more saying they make changes to their plan’s investment options less than once per year in comparison to their 401(k) counterparts.

comparison to their 401(k) counterparts

Percentage of participants who make changes to their plan’s investment options less than once a year.

Advisors can work with their clients and other service providers to drive engagement through both digital and in-person education events.

So what do 403(b) plans want from their advisor?

  • Be relationship-driven: 403(b) plan sponsors place a heavier emphasis on industry relationships. They are keenly aware of what their peers are doing, which makes it important to network within the region and/or sector (i.e., higher education, hospital, non-profit) you’re targeting.  
  • Offer holistic evaluation: 403(b) plans consider themselves “benefit-rich” programs and focus on boosting savings rates and plan participation. Robust and high value plan design analysis and participant engagement services can be a key factor in provider evaluation.
  • Identify areas to improve: 403(b) plans need to further optimize and streamline their plan design. For example, 401(k) plans use target date funds significantly more for investing their plan assets than 403(b) plans (36% vs. 27%).

To see how your clients stack up against our 2018 DC Pulse Survey findings, please contact your BlackRock relationship manager.

Download the 403(b)
DC Pulse Report