What advisors think about pooled employer plans, alternative investments

Pooled employer plans represent an opportunity in the defined contribution plan space, although few DC plan advisors are familiar with them.

LIMRA’s research found that only about one-third of DC plan advisors are familiar with PEPs, although the advisors who are familiar with them fall into one of three groups.

The first group was described as “occasional” advisors, said Deb Dupont, assistant vice president and head of institutional retirement research at LIMRA Workplace Benefits. About 17% of occasional advisors are familiar with PEPs, according to LIMRA research.

“The occasional advisor is really a wealth manager,” Dupont said. “This is somebody who probably has a lot of small-business clients, and they might sell a plan or two to support their wealth management business. These occasional advisors don’t focus on defined contribution, they don’t focus on workplace, and they only generate up to 20% or so of their practice income from their defined contribution advising.”

The challenge with this group, she said, is that the occasional plan advisor is more likely than advisors from other groups to be working with the smaller businesses for whom PEPs were originally designed.

On the other end of the spectrum are advisors that LIMRA described as “specialists.” About two-thirds of specialist advisors are familiar with PEPs.

“They’re truly the unicorns,” Dupont said. “These advisors get more than half of their practice income from their DC plans. An average of 71% of their income comes from DC plans.”

The middle group is what LIMRA called “hybrid,” and about 40% of that group is familiar with PEPs. Dupont said that the group tends to move more toward the specialist category of advisors.

LIMRA’s research showed that advisors “have a big appetite to learn more about PEPs,” Dupont said.

“Advisors overall welcome help, tools and training, for both them and their clients, to help them better understand and implement PEPs as appropriate,” she said.

“Primarily, they look to the pooled plan providers for this education, but also to a somewhat slightly lesser degree, they look to their home offices, to broker-dealers and to record keepers to help them understand this market.”

Dupont said advisors are “more positive than negative about PEPs, so they recognize that participation can help their employer clients reduce costs.”

But, she added, advisors see a reduction in employer control over the plan as the biggest drawback for PEPs.

“They’re guardedly optimistic about how PEPs can expand, and they see this construct as an opportunity to attract new clients,” she said.

Source: LIMRA

Advisors concerned about alternative investments

Last year, President Donald Trump issued an executive order opening the possibility of offering alternative investments in employer-sponsored DC plans.

Dupont said LIMRA research found only 17% of advisors surveyed are very familiar with the executive order, while most advisors are skeptical of introducing alternative investments in DC plans.

Only about 30% of advisors believe private equity and private credit should be integrated into a DC investment vehicle, she said. Advisors’ views on how private equity and private equity should be used are mixed.

Source: LIMRA

However, few advisors believe that alternative investments have no place in DC plans overall, Dupont said. “But there’s a lack of consensus about how alts might fit into specific DC plan strategies,” she added.

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