BlackRock Inc. is shaking things up in the realm of value-added services and resources for 401(k) advisers with the roll-out of a diagnostic tool for defined contribution plans.
The debut of BlackRock's application is part of a broader theme playing out among asset managers, which compete to develop tools and thought-leadership insights for adviser consumption in the hopes of capturing attention in a crowded defined contribution market.
The tool in question, called
Future in Focus, is a tablet app allowing advisers to model changes to a retirement plan's design and then view the corresponding effect those alterations would have on participants' retirement readiness.
Fred Barstein, founder and CEO of the Retirement Advisor University, said that he is not aware of any other defined contribution investment-only (DCIO) shops or record-keeping firms offering comparable tools.
“I haven't seen anything else like it,” he said. Mr. Barstein, who's gotten a demo of the app, lauded it as “clever” and “really good,” citing its interactivity, ease of use and ability to quantify different inputs.
“Risk-adjusted performance is always [a] number one [consideration] — but when I have several players that could be a fit for a client's plan, I would rather work with a company who is fully dedicated to helping me be a better steward to my clients' plans,” said Jason Chepenik, managing partner at Chepenik Financial.
HOW IT WORKS
Anne Ackerley, BlackRock's DC head, said that the app is meant to spur advisers and plan sponsors to think in terms of the income-replacement ratio that participants need to attain a comfortable retirement.
Advisers can use the app to model factors such as the default savings rate, employer match level, automatic escalation percentage, employee salary, expected retirement age, the age at which employees start investing and funds in which employees invest (target-date funds versus money market funds, for example). The app lets advisers see the hypothetical effect of changes to each of those on a client's retirement income.
“It allows [advisers] to see and really quantify decisions they make and what that impact is on the outcome,” Ms. Ackerley said.
The tool factors in Social Security projections and uses cap-weighted indexes to determine potential outcomes based on various investment vehicles. It leverages BlackRock's proprietary analytics capabilities, including investment stress-testing available through the firm's
Aladdin risk-analytics platform and the firm's
CoRI retirement-income calculator.
COMPETITIVE ADVANTAGE
Ms. Ackerley considers the app a competitive advantage that will get the firm more face time with advisers and plan sponsors.
“We want to be a partner with advisers and plan sponsors,” Ms. Ackerley said. “We'd love to be their first call when they've got a question about 401(k)s or retirement.”
Sean Deviney, a financial adviser who runs the retirement plans department at Provenance Wealth Advisors, said that the tool is unique among DCIO shops, based on a description of the app. Successful DCIOs are pushing business-improvement solutions instead of funds, he said.
“I'm seeing that shift in trying to become more of a consultant and partner to the adviser community as opposed to pushing individual investment products, because that's commoditized at this point,” Mr. Deviney said.
The app also plays off of a
popular retirement-income conversation playing out in the DC market. Record keepers such as Empower Retirement and Voya Financial have been at the forefront of the plan health and income-replacement dialogue through participant websites centered on income replacement and other related issues, Mr. Deviney said.
While these participant sites have similar functionality to the BlackRock app, the same can't be said for sponsors' sites, said Andrew Way, senior analyst at Corporate Insight. Existing portals allow plan sponsors to create custom reports that provide a snapshot of plan health, but they aren't as interactive, said Mr. Way, who tracks both the participant and plan sponsor digital portals offered by record-keeping firms.
THE CAVEAT
At the moment, BlackRock's app is only available for use on the tablets of the firm's salespeople during meetings with advisers and plan sponsors. Advisers can't use it on their own outside of a meeting with a BlackRock representative, but they can model various scenarios and get an e-mail or printout of the results.
“That's less valuable to me,” Mr. Deviney said. “[However,] a tool that would allow you to [model] at a plan level with [plan sponsors'] demographics and present that to the decision-makers would be something of value.”
Ms. Ackerley said the purpose, for the time being, is to demo the tool, explain it to advisers and gather feedback. She said that she could “see [BlackRock] making it more broadly available” based on advisers' reception of the app.
There's a larger hurdle to retirement preparedness — getting plan sponsors to understand why the investment choices in their DC plan are important and why plan design matters for participants, Mr. Barstein said.
Without solid plan design, older employees may not be able to retire on time, leading to a shortage of new talent and skyrocketing health-care costs, among other ills affecting the bottom line, Mr. Deviney said.
Having a tool that quantifies the potential impacts of design changes for plan sponsors and participants could prove effective at swaying their decisions, he said.
