Top 10 Reasons Why You Need Clean Retirement Plan Data
by Craig Rosenthal
Jun 14, 2021
Thanks to technological advances in recent years, humans generate a ton of data. In 2020, we created an average of 1.7 megabytes of data per second, or 2.5 quintillion bytes of data daily. (In case you were wondering, a quintillion has 18 zeros.)
The 401(k) industry is no exception. America’s 401(k) plans are veritable treasure troves of data. Collectively, about 600,000 401(k) plans hold around $6.5 trillion in assets on behalf of approximately 60 million participants, not to mention millions of former employees and retirees. That’s a lot of data flowing in and around the country’s retirement system.
Whether you’re a financial advisor, home office, DCIO, or 401(k) plan service provider, data is the backbone of your client retention and acquisition strategy. You need access to accurate, relevant data to help your clients benchmark their plans and make informed recommendations for improvement while also making sound decisions for your business. But how do you know the retirement plan data you’re using is accurate, up to date, and the source is unquestionable?
Top 10 Reasons Why Clean Data is Important
Sourcing and validating retirement plan data is key to a plan’s success. However, the sheer abundance of data coming across the transom can be cumbersome and overwhelming to manage, leading to fiduciary and compliance risks. Having accurate information is important to everyone involved in managing and administering the plan. That’s why it’s vital to make sure plan data is current and error-free.
Here are the top 10 reasons why clean data matters:
- It’s critical for benchmarking: Regular retirement plan benchmarking is a fiduciary imperative. Clean data provides a context for benchmarking metrics, including:
– Assessing the scope of services being provided to the plan
– Evaluating the value being delivered to the plan and participants
– Examining the reasonableness of fees
- It provides a foundation for sound plan recommendations: An auto mechanic typically runs a diagnostic to determine the cause of a customer’s car troubles. Similarly, having access to current, complete plan data enables advisors and other plan service providers to easily pinpoint issues — such as low participation or deferral rates, or poor asset allocation — and make appropriate recommendations to solve them. Those recommendations might include updating the plan design or retooling participant education strategies to improve uptake, for example.
- It improves data quality and enhances efficiencies: Eliminating outdated and incorrect information ensures only the highest-quality data remains. That saves time and resources because your staff doesn’t have to spend countless hours wading through and attempting to correct bad data.
- It saves money: Correcting retirement plan data errors is not only time-consuming, it’s expensive. Clean data eliminates the need for costly corrections.
- It helps reduce risk: Leveraging clean data enables plan service providers to make better-informed decisions that serve the best interests of the plan and participants, thus fulfilling their fiduciary responsibilities and reducing the potential for time-consuming, costly corrections and lawsuits.
- It facilitates better business decisions: Having access to good data provides an opportunity to ensure your pricing and service models are appropriate for the clients you serve, and that they’re aligned with industry best practices.
- It delivers opportunities to grow your business: Sourcing reliable data enables you to quickly view, analyze and compare that data not only for individual clients, but from across your entire book of business. This allows you to stay in-the-know about your clients’ plan metrics, and identify service gaps and potential opportunities.
- It helps improve client retention and enhance profits: According to one survey, financial advisors with access to quality data sources had 57% more clients and 46% more revenues. In addition, advisors that retained 95% of clients over a three-year period increased their assets under management (AUM) by 25%.
- It justifies the fees being paid for the value provided: Good data can be used to satisfy a benchmarking requirement and justify your fees by demonstrating the value your firm delivers for the services you provide. It also provides openings for critical client conversations. Good communication is key in client relationships, and the ability to have important conversations when they are relevant, timely and meaningful can help ensure those relationships last. Finally, having clean data enables you to identify areas for improvement in your service model and fees.
- It instills confidence: When you rely on clean data to benchmark your clients’ plans and provide sound recommendations for improvement based on metrics you can trust, your clients can feel confident that they’re getting the best service and support for their plan dollars.
How Do You Get Your Data?
Where you source your data matters. Why? Most data service providers deliver what amounts to an enormous “dump” of information, then leave it to the organizations using the data to sort out whether or not it’s accurate and relevant.
In essence, the best data comes from three sources:
- Direct recordkeeping relationships: Information comes in from the recordkeeper on a frequent basis (i.e., monthly or quarterly) and is carefully monitored to confirm it’s accurate and timely.
- Direct users of the system, with self-reported data: An advisor adds their fees and services into the system, and that data serves to inform how they stack up against industry standards to help improve service models, and for benchmarking purposes.
- Hands-on benchmarking research: When other data sources aren’t available, it may require direct, “boots-on-the-ground” research on behalf of a specific client.
Maintaining Accurate Data
Once the data is collected, how do you ensure it remains accurate? The short answer: Rely on systems that leverage the highest standards in data collection, including ongoing rigorous checks and balances that ensure the information that goes in is accurate and is regularly scrubbed for accuracy and consistency.
Fiduciary Decisions obtains all data directly from the source – the service providers that charge the fees and provide the services. In addition, we ensure that all data is current and have processes in place to guarantee accuracy.
FDI’s benchmarking data and data aggregation services can help ensure you have the information you need to enhance your ability to serve your clients and deepen your relationships over time. When you’re able to grow your business and increase retention while delivering exceptional client service, everyone wins. Making sure you have consistent access to clean data is a clear pathway to success.
Craig Rosenthal, Head of Strategy and Chief Marketing Officer
Craig is Head of Strategy and Chief Marketing Officer for Fiduciary Decisions. In this role, he is responsible for driving Product and Partnership strategy as well as the overall messaging and marketing for the firm.