Welcome to episode #10 of the Fiduciary U podcast. My guest today is Michael Doshier who is a Senior Defined Contribution Advisor Strategist for T. Rowe Price where he is primarily responsible for driving the increased visibility of T. Rowe Price’s investment brand, furthering the firm’s position as a thought leader in the retirement arena. He’s been in the retirement industry for 30 years and previously held executive positions at Fidelity, MassMutual and Franklin Templeton Investments.
On today’s episode, Michael shares his insights from T. Rowe Price’s 2020 Defined Contribution Consultant Study which included survey responses from 21 consulting firms that work with over 5,500 plan sponsor clients and nearly $4 trillion in assets under advisement. We discuss emerging trends facing retirement advisors like improving and aligning communication with plan sponsor clients, the growing trends towards delegated investment solutions like OCIO and 3(38) engagements, expanded participant solutions such as financial wellness, student debt, and HSA offerings, and a framework for advisors and plan sponsors to evaluate longevity risk and architect tiered retirement income solutions, spanning areas like distribution methods, in-plan investments, retirement income solutions, and individualized strategies. And be sure to listen to the end where Michael shares his single most important piece of advice for retirement advisors which is to evaluate and understand the inherent biases that may exist with existing business models as the industry transitions from a focus on accumulation to decumulation and post-retirement solutions.
And so with that introduction, I hope you enjoy this episode of the Fiduciary U™ podcast with Michael Doshier from T. Rowe Price.
“There’s only so many billion-dollar plus plans, and in order to keep the revenue stream up and the shareholders happy of those large consulting firms, you just had to come down market.” - Michael Doshier
“The more we can simplify and give updated communication, the better off our client sponsored plans will be.” - Michael Doshier
“At the end of the day, a better educated client will probably be a longer-term client.”- Michael Doshier
"So large market plan sponsors, 50% of them said they would prefer that their participants remain in plan with their balance post-retirement." - Michael Doshier
Josh Itzoe: Michael Doshier, welcome to the Fiduciary U™ podcast. Thanks so much for being my guest today.
Michael Doshier: Thanks, Josh. I'm happy to be here.
Josh Itzoe: For the audience, that may not know who you are, why don't you give a little bit of background. You recently, within the past year and a half or two years came to T. Rowe Price and maybe talk a little bit about your background, what your role is at T. Rowe.
Michael Doshier: Sure. Thanks, Josh. About a year and a half ago, I was asked to join T. Rowe Price in a newly created role that was really to take our thought leadership up a level in the advisor sold space of retirement business. In the VA world, I help on a sub-advised standpoint, strategize where we're going. In the DC world, I help from a plan design, investment line up standpoint, understand where things are going. I try to be responsible for listening to the marketplace. I'm very happy to walk into the legislative and regulatory conversations. I'm also always trying to listen our clients through client advisory boards and through our salespeople what they are hearing out in the marketplace and really assess all of that and bring it back in and say, "Hey, here's the strategy for our retirement business." Happy, happy to be with a firm like T. Rowe. I've been in the industry about 30 years.
I spent the early days of my career with a big recordkeeping shop. You've probably heard of the name of Fidelity Investments and then did a little stint with Mass Mutual and then did about seven years with Franklin Templeton before joining T. Rowe Price. And the interesting thing about those four stops is while they've all been big innovative leaders and players in the retirement space, they've all had a very different DNA and that's helped me have a very broad perspective of how success is won or lost especially in the advisor market with business partners such as the four firms that I represented. It's been a wide variety of experiences. I've been very, very fortunate in my career to have a good time, at the same time I've been able to hopefully influence the retirement system in America in some fundamental way. It's been a great journey.
Josh Itzoe: Excellent. One of the things you had mentioned working with intermediaries, advisors and consultants, and one of the things we're going to talk about today, which I'm really interested in getting your perspective on, is your 2020 DC Consultant Survey that you recently released at T. Rowe Price and I believe it was the inaugural survey. Let's just start with these terms, consultant and advisor, is what we're going to talk about on the episode today is, I think, really the perspectives of both those types of players in the space, but those terms often get used interchangeably, that may or may not be an accurate approach, so why don't you maybe tee up what you see is the difference at T. Rowe Price between the consultant space and the advisor space and whether or not those lines are blurring more now than maybe five or 10 years ago.
Michael Doshier: Sure, Josh. I think that's a great place to start because it's something I've thought a lot about. One of the things that I love about T. Rowe Price is our long-term dedication to the retirement industry and got some very, very thoughtful business partners in our institutional business up in the mega market that really devised this survey and came up with the strategy and we were talking about how to bring it to market, they were talking to the more traditional, what you'll call consultant subsegment, I'll call it, because I think there is a blending of the word advisor and the word consultant. We decided to test it a little bit and just use generically the term consultant more than we used advisor because we were looking to make sure that the people we were talking to in the survey were on the larger end of the market, not dedicated to the mega market, but let's call it the upper end of the mid market through the mega market.
We were looking for people that were innovative, that were trying to drive change because we wanted the survey to be about emerging trends not well established and, again, regurgitation of existing DC marketplace type of data. You can get that data in a lot of places. As we had those conversations, I started testing out, especially those boutique DC specialist advisory firms that are playing in the mid-market space and really trying to bring large market offerings down into mid-market space through aggregation and relationships they are building with firms like T. Rowe Price.
We knew that that overlap was growing and so we tested it. Some advisors, when I used the term consultant, will look at me, I'll call it with a hairy eyeball and say, "Are you really talking about me?" And sometimes it's clear that they are just more of a traditional, I'll call it, classic financial advisor mentality, even though they might be dedicated to the DC business versus more of a consultant model. And you start pulling apart some of the data in here and you see the consultant business model is clearly different sometimes.
We'll touch on things like OCIO and delegated and 3(38) in a few moments, Josh. That's where it really starts to show itself in some of the offers. Conceptually, the blending across, especially this middle market space between traditional use of the word advisor and more large market use of the word consultant, I'm trying to just say, "Hey, the intermediary in question here is completely up to yourself to define you, but I'm using the term somewhat generically." And for the most part when we talk to the firms we talk to, there were 21 of them, that represented 5,500 plans and almost $4 trillion in assets under advisement.
Most of them said, "Yeah, I get it." I think of myself as a consultant as much as I think of myself as an advisor. Probably less so if you go talk to the large consultants. They probably don't think of themselves as an advisor at all, but they clearly see themselves as consultants.
Josh Itzoe: I think I certainly would agree with that. Some of the names of the 21 firms are the traditional consulting companies that you would think about, the Mercers and the Aon’s and the NPCs but you also have the cap trusts of the world, which play, if you think about market segment play, up market and down market. Just out of curiosity, what do you feel like the appetite is or do you feel like large consultant, large market players are more interested in moving down market or do you think more the mid-market players are interested in moving up market? Where do you think from just the advisory consultant industry in general, where do you feel like the industry thinks the greatest opportunity moving forward is?
Michael Doshier: That's a great question, Josh. Going in, my assumption was that the stronger force was the consultants coming down market than the mid-market advisors going up market. What I think I found now between the actual survey itself and then the road show I've been on since talking about this, with not only those 21 firms in detail, but talking about this with untold other firms including the branch offices of some of those advisory firms you just mentioned. I think it's pretty equal weighted.
Going in, I thought the consultants coming down market was just a pure economic necessity. There is only so many billion dollar plus plans and in order to keep the revenue stream up and to keep the shareholders happy of those large consulting partners, who just had to come down market. And that is clearly happening. I think you often see the bottom line being drawn by some of those firms now down into the 500 and even $250 million size plans, maybe even less than that.
But, man, I tell you, when I started talking to some of those aggregation kind of firms that grew up in the maybe 25 to 50 to maybe even $75 million space, they weren't shy to say, "Hey, here's where I got a billion dollar plan, here's where I've got a couple of $750 million plans and I'm laser focused," because I think when the first round of the DOL fiduciary rule was out there, some of these hybrid models, both wealth and retirement coming out of that space, gave them some pretty powerful infrastructure for being on both sides of that transaction with the right kind of fiduciary infrastructure. I think that momentum has just stayed. I think there is a lot going actually in both directions.
Josh Itzoe: That's great insight. You had mentioned, one of my questions was going to be, what were the goals and objectives that you had with launching the survey. One of the things you had mentioned was just a focus on emerging trends. What else ... because there is some really fascinating, and I think valuable data within the survey. We'll put a link to in the show notes to some of these resources for listeners to find them, but what was the primary driver for your team? There's a lot of surveys that are out there. Why this focus and why now?
Michael Doshier: Why this focus and why now? T. Rowe is definitely seen as a leader in the retirement industry. We are one of the big QDIA providers, target-based suite providers and have been for 20 years, but when you started looking at a regular cadence of developing ourselves as a demonstrated thought leader in the retirement space, it was more sporadic. The work we'd done to design our target date funds and continue to innovate always led to great conversations with our clients about why we're doing what we're doing and why we continue to achieve at the levels we achieve. But we didn't have a regular cadence of delivering insights kind of bigger and in a more consultative way to our clients and we wanted something that would enable that.
So with that first criteria, we then said, "Where is there less noise in the marketplace versus more?" And we realized while there are a lot of surveys out there, a lot of them are at the plans, a lot of them are at the participant level where the average account balances. I've worked for firms where we developed that data and it's all very helpful. But talking to consultants, which is now evolved into talking to the consultants and the more innovative advisors, there wasn't much out there. There was one. One of the large bond firms off the west coast had been out there doing this for 10 plus years, but other than them, we didn't see much in that space.
And we thought, "You know what, we can match that." And because we also have our ongoing participant research that we do with thousands of participants, retirement savings and spending survey, we thought, well we go talk to consultants, and we go look at our data about participants and we can compare and contrast. You see that show up here in the survey somewhat. We also had done some pretty robust research with the investments organization. Late last year, we even brought some of that in here too.
You'll notice these little icons of plan sponsor views and views. So you put all that in the oven and bake it and it came out pretty strong. So we got a pretty unique spot here. It is attempting to be on the more innovative large market in this crystal ball, maybe even for small market advisors just to look and see what's going on and they can decide for themselves what's a short term concern or opportunity for them versus what's maybe longer term. But it does serve as a little bit of a beacon of hope. It's gone pretty well the first six months. We've been out talking about the marketplace—
Josh Itzoe: Yeah, I thought it was interesting overlaying. And I thought you really did a good job with it in terms of overlaying perceptions and attitudes of advisors, consultants and then overlaying that with plan sponsors as well and then actually mixing in participants versus plan sponsors at times. I think one of the things that came out to me is that in certain areas, there's seems to be pretty consistent alignment but there also seems to be a divergence at that times between what plan sponsors kind of value relative to what participants value but also, what plan sponsors and what consultants and advisors, there seems to be a bit of a disconnect.
So one of those and we'll start to dive in. I think we can certainly talk about some of the delegated or outsourced OCIO, 3(38), the appetite and the environment for that but even around QDIA and obviously, you had mentioned T. Rowe Price being one of the big three from a target date fund standpoint. One of the things that jumped out to me within the survey that was interesting was there seemed to be a disconnect between how advisors consultants had viewed their clients' approach to assessing the QDIA for their plan relative to what plan sponsors said.
43% of plan sponsors said that they had maintained a consistent approach with their QDIA over the past, call it three or four years. But only 10% of consultants said that. So that's an interesting ... There was quite a bit of a divergence there and why was that? What do you think are some of the potential opportunities that exist to really ... One of the top things in the advisory world is you can be doing a great job for clients or you can think that you've checked the box and that you can close alignment with what's important to your clients and then find out after the fact that you misread the situation and you never want to be in that type of position. Just around QDIA assessment over the past few years, why do you think there is a divergence from that perspective?
Michael Doshier: Yeah, Josh. I think you picked up on what I perceived as the biggest disconnect between plan sponsors and consultant/advisors in the entire presentation. I was actually pleasantly surprised to see quite a bit of alignment. I think consultants and advisors have educated plan sponsors over the years quite effectively because I did see a fair amount of alignment but this was the biggie. A couple of things, one, I think it's great news for the average advisor or consultant because there's probably value added work going on that just needs to be better articulated.
I was actually just listening in on one of those kind of personal development podcasts a couple of days ago that had a quote about communications and one of the fallacies of communication is the perception that it's actually happened. And how little that actually happens, right? Somewhere I saw a staff that maybe 20% of what we say actually gets picked up. So if that's true, then I think in the course of all the technical nature between an advisor/consultant and their plan sponsor client.
20% is probably the most that gets picked up, right? So if you think about that, what happens is there's a lot of email-based communication, a lot of larger review communication just talking about technical backdrop type of conversations around how assessments evolve and change, whether the products that's out in the competitive landscapes changing or the market dynamics are changing or even something as simple as say, a product has a hiccup, manager change, or something like that.
All these different dynamics that are feeding into this process, now you layer on top of that even with large plans that have bigger, more dedicated benefits staff, whether we're talking on the treasury side or the HR side. They're not often long term technically deeply experienced people that you're interacting with. It's more of a junior profile, lots of turnover, lots of people that maybe don't understand it with the level of the depth the advisor or the consultant does. So I think all of those forces are at play. The signals aren't always picked up.
So I'm signing it off on that. I do believe the work does happen. I mean I've talked to enough advisors and consultants over the years that ... and the methodologies are getting stronger and stronger the more rigorous review process and thinking about things more deeply, whether it's the behavioral finance components that have been built in overtime and it's looking at the different ways of assessing risks that have evolved and developed overtime.
I think it's just a matter of pausing, coming up with maybe a more simple language way of saying, "Hey, look, every year or 18 months or two years, here's what my firm is doing to reassess your QDIA selection and validate that it's still the right one." I think we sometimes get caught up on our own complexity, too many multi-syllable words. We like to feel smart. I mean I think the more we could probably simplify that, and just give updated communication I think the better off our plan sponsored clients would be.
Josh Itzoe: Yeah. I think what's interesting too and so much is done electronically now that I think there's a lot of the written documentation is probably going by the wayside in more of a consistent format. And so that I think could be an opportunity for most of us working and whether it's PowerPoint or Excel but a lot of times, that doesn't provide the context. And even minutes, which we all know is the best practice and probably doesn't get done. They don't get written as much as they should but certainly, there's been much more to focus on, taking the minutes certainly from a fiduciary perspective over the past probably five to 10 years.
But I do think there's a real opportunity and advisors would be wise to tighten up, probably writing more detailed memos as a ... I was a history major actually in college and one of the beautiful things about history is that there's this written record that you can kind of go back to. And so I do think there's a lot of opportunity for advisory firms to probably documents some of those things that have either been discussed at committee level in a more detailed format than just minutes. But that can probably provide a really good record actually for clients and the body of work and also, one of the biggest challenges, especially at market you had mentioned it but just in general is you get turnover at the committee level. You get turnover in the executive management function.
One of the big challenges even for us as an advisory firm is you get clients where there's turnover on the committee and you feel like you have to consistently go back and kind of resell your services or you have to go back and reeducate. Here are all the things that we've done and whatnot. That might just be kind of a little learning point for advisory firms to maybe shift to writing more detailed memos that provide an opportunity that deep dive into what has been done in more comprehensive format. And that might ... using simple language but more than bullet points to kind of provide the context.
Michael Doshier: Couldn't agree more, Josh. I thought the point on documentation and a audit trail but I think that last comment about just making sure that the language is simple and direct and less technical, I think we'd all—
Josh Itzoe: Yeah, you're solving one, you're solving for risk management. The other you're solving for, I think, understanding. At the end of the day, a better educated client, a client that has a great level of understanding is one, they're going to be a better client; two, they're probably going to be a more longer term client like you said. If the work's getting done but you're not getting credit for it, that's obviously a problem.
One of the things that came up as well was this increased interest, especially from the consultant advisor space around outsource investment solutions. So whether market that often goes by, the acronym OCIO outsource CIO services I think more down market, the advisor communities. It's probably more commonly referred to as ERISA 3(38) services but really at the end of the day where the plan sponsor is delegating fiduciary responsibility and authority for selecting and monitoring investments to an advisor or consultant. What have you seen?
And just in looking at the data, it's interesting, consultants and advisors seem to across the board, I think 0% said that they actually saw a contraction in those services if I remember correctly. I'm looking at the data. Everybody in that survey said that they have seen an increase in that. What do you think is driving that move towards those outsource delegated services?
Michael Doshier: Yeah, I believe the complexity of the overall investment management kind of monitoring and assessment process, it bleeds off a little bit of the conversation we were just having about that different understanding of the QDIA assessment. It's clearly a world where the situation has forces both pro and the negative forces right now against it, which obviously are probably less strong in the positive forces, every single firm did say they experience growth in this then states and expect that to continue.
As a matter of fact, let me give you some quick stats here because I know sometimes listeners like to validate those kinds of things. So of the 21 firms we talked to, again, you said it, all of them said growth. No one said flat, no one said shrink, all of them said growth. 40% of those 21 firms said that their personal expected growth rate year over year was going to be something north of 16%, only one quarter 25% of them said their personal growth rate in that space was going to be something north of 30%.
So this isn't a little growth. This is a lot of growth. So that backdrop, I'd say the forces that are still working against it, and this is in the data it comes back from the consultants on behalf of their other plan sponsor clients but the real big drivers that are still stopping this from growing even more are just the reluctance to give up control, that was the number one thing that some plan sponsors are articulating some concerns over.
Second thing was just higher costs. We all know as advisors and consultants in this industry, there's a lot of pressure on these. There have been for years. The market is becoming more and more competitive, more and more saturated. We're all looking for ways to maintain a living, to delegate there's additional services, there's additional responsibilities. It doesn't happen for free. So more often than not, I think there's still a lot of competitive landscape shakeout that's going to happen on the pricing level but for now, let's just assume there is layering up of fees for that delegation and that that still concerns plan sponsors because most plan sponsors, especially now after pandemic and after a potential hit to their bottom line as a firm, they'll have extra money they can spend on DC plan administration but that is a concern.
And just the ongoing concerns around technical understanding and capabilities, whether it's volume of administrative responsibilities purely or understanding some technical work that needs to happen and just handing that off. We know in ERISA and looking at it from a lawyer's perspective, you can never fully delegate your fiduciary responsibilities plan sponsor but you can like the 3(38) language is very clear, you can share that with someone and get them to fully understand what processes they're managing for you.
I think all of that is kind of working against it. If you think about forces that are supporting it. So these are obviously where I think most of the momentum is. Fiduciary risks, right? That is the driver and we've got another flurry of lawsuits out there that seem to have kicked up late last year, mostly around cost, mostly around making sure you're managing the expenses that investments are being asked to bear. But that lawsuit concern and just general fiduciary risk is the biggest driver of why this doesn't pick up speed.
Transferring that responsibility for those technical aspects that they just know that no matter how big the benefit staff is on the treasury or the HR side in a large plan, they're still in that level of expertise with most advisory consulting firms that they don't have. That's a big driver. And just thinking about the shifting of just volumes of responsibility back to the administrative tasks side of things. Those three things are what's driving people to kind of take a step back and say, "Do I have the capacity? Do I have the technical capability?" The answers to those two are no. And I've got an escalated concern over fiduciary risks and lawsuit exception. There's the drivers.
Josh Itzoe: So one of the interesting questions, so that's the perspective and the way it's often positioned to plan sponsors and so that's kind of how we frame it in the advisory world. I actually have seen more and more advisors and consultants actually want ... There's a perception that there's actually less work in some ways with being a 3(38) than more work that the frequency with which you need to meet with the committee is actually decreased as opposed to increased. And with firms trying to, profitability is something that is important.
So one of the questions I have is where do you think that growth is coming from for those firms who responded? Do you think that is new engagements, not previous clients, plan sponsors that are becoming clients and being, call it outsourced clients or delegated clients? Or do you think that growth is actually advisory firms going back to existing clients that may have been in more of a 3(21) arrangement and saying, "Hey, you know what, let us move you over into this 3(38). And here are the reasons potentially why."
Where do you think that growth's coming from? Is it new and organic or do you think it is more of a shift of the existing client base? And from an advisory firm perspective, I think the thought is if there is, "Hey, I only have to meet with my clients maybe two times a year instead of four times a year, which means that even if I don't charge higher fees, I can create internal capacity to add more potential clients and grow top line revenue."
Michael Doshier: Yeah, I've definitely heard ... So starting with your first point about does it actually become less work or less administration, I've heard that a lot. I think that you've got to look at the compensation regimes here and what they're compensating you for. Some of that could be just volume of work. Some of that actually could be the assumption of that risk and managing that responsibility from an overarching standpoint. And if you as an advisor or consultant can find a more efficient way to do that inherently by the design of your offer, more power to you and I don't think that anyone would argue that.
Not everyone makes that case but there's enough that I've seen that do. And I think the firms that are more inherently designed to be fiduciary responsible, so I've talked to several firms that their percent of their business is 3(38) is the vast majority. And I think those people just have an inherent offer that is designed to be efficient and effective and hopefully manage risk. So I do believe that that is definitely at play.
I don't have empirical data on where it's coming from. I think it's all over the board again on the history of the firm in question, running all the way up into those large market consulting firms right down into the middle market from an advisory standpoint. I think some firms have jumped on the delegated services bandwagon aggressively and early. I talked to many that do the vast majority of their business and their default offer is right into the 3(38) setup. I've talked to many that are primarily 3(21). I've talked to some that are only 3(21) who don't want to get into the 3(38) fray, let's call it.
But those are few and far between. I do see a lot of firms that have historically been 3(21) primarily and are now starting to shift over to 3(38). So again I think it's situational according to the history of that firm but I think everybody might be coming from a different spot on the ice. I like to use the old skate to where the puck is going—where it is now analogy of hockey. And I think that a lot of people are trying to find the puck heading towards it but they're coming from a variety of places on the ice.
One other thing I would add is kind of where is it headed from and what is the product offering look like? And this is where the data might be skewed toward the consulting model and the large market firm but what we saw loud and clear with these 21 firms, I think to the tune of 63% of them and 57% of them respectively, what does that OCIO primary offer look like? And it's going into the space of replacing off-the-shelf targeting funds with custom target date solutions.
Now, let me play that out a little bit. There's two variations on that. One of the models I saw was what I'll call the whole enchilada model, which is the firm was going to do a custom target date fund all the way from multi-manager selection, to the glide path design, to the ongoing administration and assessment of all the asset managers that are within that construct. The second but almost as popular was just slicing off a glide path design and selling the glide path, and then letting that get overlaid either onto the existing lineup of the plan or to some other construct that may be created separately.
Those two were loud and clear, the biggest options as far as where these firms were looking for some of that OCIO, 3(38) type of deployment, what the product offering looks like. Now that said some of these firms that are more traditionally mid-market advisor, I often had them throw up a stop sign and give me the hairy eyeball and say, "Yeah, not us." We're not going to be able to recreate the process and the structure and the advancement and thinking that happens in a shop like T. Rowe, 20 years of target date design and constant innovation. We're just going to keep shopping for the best of what's available and that will be how we do our fiduciary responsibilities but that was what we heard and then that was a little bit of a counterpoint we also heard as we delivered this data.
Josh Itzoe: That's actually a really interesting perspective and like a lot of things and kind of the next topic I want to dive into for a couple of minutes is going to be wellness. And I think it's a similar approach before we get there, call it 3(38). Like that could take on a lot of different forms. What does that look like? Are you at 3(38) for the entire plan level where you're selecting all the individual asset class fund and every fund in the plan where you're taking on discretion for selection and monitoring? Or is that still, "Hey, we'll be at 3(21) at the plan level but we're going to focus as a 3(38)." More around whether it's target date or whether it's managed accounts.
I had Todd Lacey from Stadion, which is a managed account provider and you see Morningstar now. So you're starting to see some of the plumbing around some more of these kind of personalized managed accounts but there's a lot of different flavors from that perspective from an advisor. You could literally just select a Stadion or a Morningstar and they do everything. Or you can actually give them your own glide path and the selection of funds. Or you can say, "You do the glide path and we'll just select and monitor the fund." So I think that's the other challenge and what does that look like? What does that offering look like?
And then within the marketplace and this creates challenges for I think advisors and consultants is because there's no consistent framework of what does it mean to be OCIO, 3(38). It could take all these different flavors. Very few plan sponsors actually, they can separate the wheat from the chaff and kind of understand it. It seems like there's a lot of fragmentation on what exactly that means and probably will continue to ... I don't see that fragmentation getting fixed anytime soon.
Michael Doshier: No. I actually see it probably getting a little bit more noisy before it calms down because this is a very, very hotly contested. As the growth expectations that I just articulated earlier demonstrate, you get this much of the market that's that focused on this opportunity. And it's only going to grow, which means the variety of offers, whether it be the Stadion example. Todd's a great guy he and I shared a stage of that 5360 a couple of years ago. Stadion's clearly got its eye on the ball. You got those fully bundled kind of total outsourced solutions like he and Morningstar and others have. You've got other more laser shock right into the QDIA or right into a managed account that many firms are moving. And even the definition of QDIA managed to count the blending of those with that idea of the dynamic model.
That's all changing too. So I think you're spot on. I think it's going to get noisier and it's going to be a great opportunity for advisors and consultants to help plan sponsors sort out the noise, separate the wheat from the chaff. Some of them are solid offers. Some of them are a little more squishy and figure that out before it settles and maybe the marketplace starts to tear and kind of look a little bit more normalized. It's fairly early on.
If you think about managed accounts as an example, FE's been out there for 20, 30 years with a managed account offer but what that looked like 20 years ago and the stuff that's coming to market now are night and days. Pricing levels and just automation and simplicity. So we've got a lot of competitive forces that are going to continue to make this a noisy space for the next few years.
Josh Itzoe: Yeah. And it doesn't necessarily need to be a binary either or approach. I think it can be at both end and I think that that is ultimately the opportunity for advisors and consultants and quite frankly, record keepers is how do you deliver sophistication and optionality to plan sponsors and participants, but sophistication in the simplistic form. It doesn't necessarily mean that hey, we're going to rip out and get rid of off-the-shelf target date fund for a managed account. Maybe there's a tiering approach from everywhere from a total do-it-yourselfer where there's asset class funds.
And what we've seen the trend, and I think this is pretty consistent across the industry, is 20 years ago, you saw smaller menus and then you saw the kind of expansion of fund menus and more off options and then with a lot of behavioral finance research and evidence. You've seen kind of a core menu moving back to starting to shrink more but the increase in tiering. So maybe there's asset class funds and right now most plans are asset class funds and target date funds. But maybe that tiering is asset class funds and target date funds and then more of a personalized kind of managed account solution and retirement income, which we'll talk about in a few minutes as well.
So I do think the opportunity exists and where as an industry, we have to do a better job of figuring out and sourcing the right solutions and creating more optionality because I think that's part of what the data says as well as kind of a one size fits all approach is not that attractive to anyone. So I think there's options to create tiering and the way that we frame some of these options. And I think we have to do a better job within the industry.
Very briefly, wellness. So wellness is kind of the topic du jour and I've been saying this for a while on a couple of podcasts and some interviews is that I think plan sponsors especially in light of 2020 are kind of fatigued with fees, funds and fiduciary even though those things are still actually incredibly important. But the thing that everybody wants to talk about is wellness. And so how from the survey, like what did you see? It was interesting. It looked like for me, wellness is still critically important. Plan sponsors say it's important. Consultants advisors say it's important but was not the most important thing.
Is that true kind of from the data where there are other kind of higher priority areas really moving forward from an emerging trend standpoint? But then in light of that if that's the case, where do you see these consultants advisors shake out on the wellness landscape?
Michael Doshier: There's a couple of layers to the answer there. So financial wellness showed up in two ways in the survey. First of all, you got to remember the field on this, just before the pandemic struck and then we went back into the field to validate some things after the pandemic struck. So our timing was, I'd love to say it was a brilliant strategy but it was just dumb luck with our timing. When we started asking those questions post the CARES Act, so that was March 27th, we started asking some questions of these firms in April. What was going on in their minds? What was being impacted by the pandemic, the coronavirus and ultimately the CARES Act?
In April and May, the ostrich strategy was going on across the board. People just kind of stuck their head in the sand. They were trying to deny reality. A lot of the business administration tasks of fund reviews and then changes to plan lineups clearly if not the brakes flat out being hit, at least the foot was off the gas. They were focused on getting those coronavirus-related distributions implemented and the loan repayment suspensions implemented and the increased loan limit opportunities were being implemented. But what was showing was as advisors and plan sponsors were trying to deal with the fastest 30% drop ever seen in the S&P 500 in March and April, people needed help, right?
Plan sponsors and participants were screaming for help. Plan sponsors, how do I manage my costs and control? What I'm coughing up in my plan for participants, it took the shape of wealth. They weren't asking how do I continue to save for retirement. They were like, "Crap, I just got furloughed. How do I make ends meet? What options do I have with my financial life in general?" And that took the shape of wellness. So a lot of these offers, whether they were digital online offers or more financial consulting directly with either through an 800 number or through somebody that they could call on, those spiked through the roof. 200 plus percent data points I'd heard from many of the advisory firms and consultants we talked to.
So there was a new driver that was very highly motivated of financial wellness coming front and center again because people just knew that they weren't living the right financial lives and they wanted help. And so the reach was well beyond saving for retirement. So that's how it showed up first in the survey and I think that that's the classic silver lining in the storm cloud to me. I think the fact that people, unfortunately for many of the wrong reasons, got a real big motivation to do something about it now. People are plan sponsors and I've even heard some advisory and consulting firms say their business has grown throughout the summer and the fall because they did have such a strong financial wellness offering.
I do think that's something we need long and hard about right now. That said, you asked if it was the biggest thing they were thinking about and we asked the question too. We asked them to think about what are your biggest growth opportunities from an investment services point and we asked them to talk about their biggest growth opportunity from a non-investment services standpoint and on the non-investment services standpoint, this was the biggest growth opportunity. The specific stats we see that 25% of these firms today had some kind of design or evaluate a financial wellness offering capability but 58% expected that to be different and that would be something they would offer in the future.
So almost a tripling, somewhere between a doubling and a tripling of these firms focusing on financial wellness as their lead growth opportunity. Just to close the gap there on the investment side, the two biggest things that came up, we've already talked about both was retirement income solutions and managed accounts. Those were the two biggest on the investment side but financial wellness offerings was the biggest on the non-investment side.
Josh Itzoe: And what do you think in terms of in talking to those firms and trends that again, what is financial wellness? You have 10 people, you get 10 different descriptions of what that looks like and clearly I would say T. Rowe is unique or maybe unique is not a good word because unique means that no one else is like you but uncommon I think in the fact that you guys do not appear to be trying to build out a direct financial wellness offering as opposed to quite frankly a lot of the other record keepers that are out there. Obviously fidelity is an example, really aggressive. Everybody's trying to kind of own the participant experience, you have in power to just spent a billion dollars to buy personal capital.
And so a lot of the record keepers, and this is obviously a challenge. There's kind of this frenemy thing going on in the industry. You've got record keepers now that are wanting to kind of own the participant wellness experience. You've also got advisors and consultants though that are saying, "Because hey, we think this is a big growth opportunity and you certainly can develop really good relationships with your clients through wellness."
What do you see as kind of the trend, the strategy are 25% say that they have some type of capability, is that more of a consulting like, "Hey, we'll help you evaluate a plan sponsor, evaluate the various financial wellness solutions that are out there?" Or are you seeing more advisory firms and consultants saying, "You know what, we're going to actually build this in-house. We're not going to be a consultant and help kind of select and monitor the way that we would investment options. We're actually going to build this in-house, own the process and deliver it to clients and effectively start to compete with those record keepers that are trying to offer a financial wellness solution too." How are the sands shifting from that perspective?
Michael Doshier: Yeah, that's great and I appreciate your unique/uncommon comment about T. Rowe. I will be very transparent and upfront with you. Just like the other firms you've mentioned, we're always thinking about our capabilities broadly speaking across direct-to-investor, right through to the advisor sold, the intermediary sold marketplaces but what we have not lost sight of is the importance of those relationships at the intermediary level. So we will always come to the table in a very clear-cut way about what our client in question means. So that's why you probably see us talk less about it, maybe less high-profile press releases kind of stuff but we want to make sure that if someone like one of our clients that's an advisory firm needs some help with some subcomponent on the financial wellness front, that we have some value we can bring to the table.
So what your comment to me estimate that I think we've got our rules of engagement right, we're going to make sure that on that frenemy continuum that we're much more on the friendly side than on the enemy side—
Josh Itzoe: And to be fair and I appreciate you pointing that out, I wasn't trying to say that that T. Rowe isn't focused on the participant experience and whatnot, but it is more of rules of engagement. And it feels like with the approach you're taking, there's less blurred lines and more delineation between how do we kind of work collectively for the good of clients as opposed to possibly stepping on one another's toes in certain situations.
Michael Doshier: Yeah, no. Thank you for clarifying there, Josh but yeah, you and I were on the same page. I was just reaffirming that there's a lot of opportunity here for all of us, so let's get together, right? I mean the one thing I think is interesting on the financial wellness front, so to answer your question, I think again everybody's coming from a different point on the ice but the consulting firms I think are thinking about them as consulting opportunities, helping them evaluate and design and pick from the marketplace. I think some of the more historically, let's call it the divergence of wealth and retirement, some of those more boutique shops that are coming out of the mid-market space are building on a proprietary platform. And they want that to be a nucleus of how they compete moving forward.
I think if they do it well, there's already proof that some firms are benefiting from that right now. So I do believe you've got both happening and they're converging. I've even seen announcements coming from some of the larger consulting firms. You showed a couple of the record-keeping platforms that have made big investments or articulated. I think that's happening with some of the consulting firms too but that's a little bit more of the exception rather than the rule. So I think that the competitive forces are coming from kind of all different directions.
I think there's again just like the fiduciary offers, I think there's going to be a lot of noise as this sorts out. There's going to be a lot of different ways to solve financial wellness. One of the things I thought was interesting in the survey data, we did identify two very specific opportunities under the big banner of financial wellness. And I think your comment was right. You said you asked 10 people, you get 10 different answers. Probably 100 people, you get 100 different answers but there are some things that have traction.
In the large end of the market because of the Abbott labs letter a year or so ago on student debt repayment and potentially even reallocating some 401k matching dollars to help pay off student debt because that's what's front of mind for your younger participants, that's got traction. That is here to stay and I think there's going to be a lot of innovation in that space and I think that it will come down market. I think we've already seen some early signs that it's starting to come down market a little bit but it's kind of a mega market offer. That's one.
The other is HSAs. I know HSAs are old hat but I think a lot of firms, both plan sponsors and advisory firms have been a little bit slow to get super aggressive at really building HSAs fundamentally into the broader financial wellness offer because I think people were worried that the S in HSA was still being perceived as a health spending rather than a health savings. And if you look at where the first generation of HSAs led to short-term instruments all for where that money was held. It's not surprising we wound up where we did but now that more from thinking more holistically and more long-term about HSAs, people are trying to change that S to what it really was in the letter of law, which is a health savings account. And they're putting more long-term investment solutions sitting right there, either the same ones that are in the DC plan or some that are similar so that people can make the right long-term move with their money.
We're starting to see a big inflection point hit where the more you give an investment menu in addition to just that cash account, people are holding longer, people are saving more and we're seeing a huge inflection point as far as assets being accumulated in HSAs. And I just think because of the triple tax-free nature and because of how healthcare is going to be everyone's largest expense, whether you're talking at a plan sponsor level or you're talking at a participant level. It has to become a dominant part of a financial wellness offer in my opinion.
Josh Itzoe: Yeah, it's interesting just in terms of the HSA. That's one of those things and this happens a lot in the industry at least from my perspective is things get traction and they get talked about and they get talked about more kind of like the future tense because when you look in reality at HSAs, the vast majority of assets like you said, it's more of an emergency fund for health expenses that people are using it, funding it this year and using it when they have expenses, call it next year or even within the same year. There's not a lot of excess to be able to kind of invest long term. Certainly if you're higher net worth, if you're higher income and you've gotten margin within your personal financial savings, the triple tax free nature is ... I mean it's the most powerful retirement planning tool there is.
I think where one of the innovations that's going to need to happen in the industry and quite frankly it's going to be driven by folks like T. Rowe Price on the record-keeping side is how to deploy technology so that if I am a participant and let's say I can max out. I can contribute meaningful amounts to save whether for retirement or for healthcare. Do I contribute easily? Do I contribute to my 401k plan, max out my matching and then shift my dollars into HSA, max out my HSA and then easily be able to shift back to saving back in the retirement plan?
And so it's more of like a sequence of events. That's a hard thing to do right now mechanically if I'm a participant. I’ve got to create a reminder and outlook to tell me, "Okay, I'm going to max out my match on this date and I need to stop participating or reduce my contribution because then I’ve got to put it into my HSA." So I do think there's some opportunities over the next few years. The user experience as a participant to be able to marry those two types of accounts together, in my opinion from what I've seen is still a bit lacking and the more that we can help simplify and streamline and operationalize that user experience, so it's easy to be able to sequence those contributions, I think would be really, really helpful.
Michael Doshier: Yeah, I couldn't agree more, Josh. And I think that in my mind, that simplicity of the engagement model at the participant level definitely needs some innovation, that to me then leads us to that next topic that I know we've been thinking about, which is retirement income because I think until we figure out how to make the experience for older investors saving for retirement and ultimately pivoting and living in and spending and getting that paycheck replacement in retirement, if we don't have that same level of simplicity to how that user model and user experience is going to work, then we'll continue to be like we are there. We talk about it, we talk about it, we talk about it.
We've been talking about retirement income solutions and plan for the 30 years I've been in this business. And it's still literally all digits as far as plans that have done anything material. We figure that out I think. We are at a point where we can see some inflection.
Josh Itzoe: You guys have done some really good work on that end. So let's shift in and let's talk a little bit about retirement income solutions. And again, what does that look like? I think the traditional thought and if you think about the secure acting guaranteed income, you think annuities but that's only kind of one tool in the toolbox. And you guys have actually put together I think a really good framework, which again I'll link to in the show notes but really kind of this, call it like a retirement income solution framework that spans everything from kind of operational distribution methods that that are kind of hardwired into the plan operationally to implant types of investments to specifically retirement income generating investments and then more individualized strategies.
And you've got a really good kind of spectrum. Talk a little bit about kind of that that framework that you guys have developed because I found it really helpful as an advisor in terms of creating kind of the spectrum or the landscape. So maybe talk a little bit about that framework that you've created but specifically, how should advisors be using that framework to engage committees and plan sponsors to start thinking about how do we redesign these plans from being primarily accumulation focused vehicles to more of a decumulation vehicle?
And one of the things that came up in the data which was really interesting was there seems to be a bifurcation, really large plans call it that half of billion dollar and up seem to have a much higher appetite or a much higher interest in creating a way to keep assets in the plan post-retirement than kind of down market. Though, I do think there's still a strong appetite. More and more plan sponsors are shifting their opinions in terms of hey, how do we keep more assets in the plan once people retire so that their relationship with us doesn't necessarily end the day that they separate from service?
Michael Doshier: Yeah, well there's a-
Josh Itzoe: I think racked up a whole bunch of different—
Michael Doshier: Yes, you did. I think I counted five or six questions in there. No, this is my favorite-
Josh Itzoe: Let's start with the framework. Let's talk about the framework and describe what you guys have put together as kind of a working model.
Michael Doshier: Yeah, if I can Josh just because it's front of mind to me, I want to wrap up three contextual things. So the three contextual things are if you recall earlier I mentioned from an investment services standpoint, these 21 firms which are directing four trillion in assets under advisement said the biggest growth area that they're looking at is retirement income solution plan. So I'll just leave that right there and let that germinate for a while in your brains. If you've got that much market focus that much on it, it could be different this time because they are thinking about it.
The next thing I would say, we had done some analysis over with our recordkeeping platform and our record-keeping platform associates to say, "Hey look, as participants are moving from active to retired, the status is changing on the retirement plan, what are you observing happen?" Not survey data but actual observed behavior changes and this data is in both the survey results and in our retirement income materials that you're going to make available.
The change is noticeable, right? So starting in 2016 as participants were switched over to retired status, we asked the question one-year, two-year and three years later, where's the money? So in 2016, the retirees one year later, almost half the participants were still on the plan. 48%. Two years later, that was still in the low 40s and three full years later, that's still in the upper 30s. So more than a third participants three years after retirement are still on the plan.
Then we asked that same question of 2017 retirees, 2018 retirees and 2019 retirees and every single year that number continued to increase. As a matter of fact, 2019 retirees one year later almost 60% of them still had their money in the plan. There's something going on there. We don't know whether that's strategic choices being made or they just haven't gotten around to anything-
Josh Itzoe: Do you think that could be influenced by just the pandemic and people being freaked out and being like, "I'm not moving my money anywhere in the midst of?"
Michael Doshier: Not really because if you think about it, 2016 one year later, that was 2017. So these trend lines started in 2017. 2019 did uptick a little bit so that could be pandemic related because that was the year of 2020 where those people didn't move their money but it's clearly bigger than that. And we did ask-
Josh Itzoe: You might see a spike given the pandemic but I think we're going to analyze that back trend you're starting to see each year more, one year out. Let's say more people are keeping money in the plan, which you would expect them two years out, three years out that trend to increase as well?
Michael Doshier: Yes, yeah. As a matter of fact we can't look at 2019 because it's only been one year but if you look at '17, '18, we're up almost 50% of the participants are still on the plan two years later and you're in the 40% three years later. 40% of participants three years after retirement are on the plan. We did ask through our retirement savings and spending survey if there was a good retirement income generating investment option in your plan, would you stay? And baby boomers said yes, 70% of the time. Gen Xers said yes, 6% of the time and millennials said yes, 80% of the time. So there's something going on here, right?
Now, earlier the one final contextual thing before the framework, the interest level at the plan sponsor. So large market plan sponsors, 50% of them said they would prefer that their participants remain in plan with their balance post-retirement. Half, I did not expect the number to be like that. Only 5.7% said that they would prefer it roll over in the small market, so under $500 million plans. It was still 30%. 30% of plan sponsors said, "I'd prefer they stay in the plan." So again, that's very different than I thought it would be. I thought those numbers would be far smaller than that.
What we did find was that 38% and 35% respectively, large market and small market said they didn't really have a preference. But what I would counsel advisors and consultants to start working with their plan sponsors on is let's figure out whether that indifference is lack of a strategy or they really are indifferent because I think given the secure act and given other focuses from the DOL, having a good solid fiduciary management process and a good prudent process for helping decide whether you're keeping an implant or rollover IRA market, which has done very effectively over the last decades, have a plan.
So that's the contextual backdrop. I think the framework, I love the idea of talking about this, Josh. We could spend a whole another podcast on that I believe. Here's the one thing that I think we have to get across first before we get into the framework. We have seen the benefit of one default decision, one blunt force instrument from the PPA by negatively electing people into a target date fund and every single person got the same answer based on your age. And that has worked so well for the average 25-year-old and how much the trajectory has changed in the last 15 years in the DC business.
We can't take the same single answer blunt force instrument approach to retirement income solutions. The average 60-year-old's financial picture is much more heterogeneous than your average 25-year-old's more homogeneous view. And so if we think about that, we've got to start thinking about retirement income not being synonymous with a single product type, whether it's guaranteed or not. You got to think about it as a journey. We've got to wrap up tools like social security operation tools and dedicated communications about how to pivot to a retirement income stream from the saving the right number mentality for the last 30 or 40 years of saving. And how do you then put the right investment products together in sequence?
And so you mentioned the survey data came back and affirmed this. Most consultants and advisors, the first place to go on retirement income solutions journey and we agree is making sure that the SWP, make sure the plan documents are right and make sure the record-keeping plumbing is right so that a swift could be overlaid right on top of their assets. And they could just simply from a user experience turn on that income replacement stream. That is job one.
Josh Itzoe: And you just really quickly just SWP.
Michael Doshier: Sorry, systematic withdrawal plan.
Josh Itzoe: Systematic withdrawal?
Michael Doshier: Yeah. So in other words, how do I take all of the savings and pivot it to a retirement income replacement, whether that is a paycheck that comes bi-weekly or monthly or quarter annually but make that a simple—
Josh Itzoe: Instead of a lump sum that creating flexibility where I can get my regular, recreate my paycheck instead of having-
Michael Doshier: Right. Whether it's the 4% mentality and I'm going to tap that and get that on a regular basis or it's more on an ad hoc and as needed basis. I was surprised to hear—
Josh Itzoe: Go ahead, sorry.
Michael Doshier: Well, I was going to say I was really surprised to hear from these consultants and advisors that there's still a lot of plan documents out there that still need to be cleaned up that don't allow for ad hoc and partial withdrawals. We got to get that fixed, right? I mean that just seems like for those of us that are thinking retirement income constantly, that seems like work that should be done. I know it's not. We've got to get focused on business—
Josh Itzoe: And that's the lowest hanging fruit quite frankly in terms of ... like that's the easy stuff to be able to do, assuming the document provider has the flexibility to be able to do those things, which I mean this is like some of the other solutions that are like trying to cure cancer. Distribution methods is like treating the common cold. I don't even know if it's a a common cold. So that's the first place to start is there's actually quite a bit of probably a value-add for advisors and consultants by being able to go back and initiate that conversation with committees to say, "Hey, let's take first pass. Let's take a look at the plan document and let's evaluate these distribution methods and let's figure out what we need to do to create flexibility and optionality within the plan so that if you have participants to your point earlier, it's not a one-size-fits-all approach."
But for those that want to be able to kind of leverage that withdrawal mechanism, there's a way that they can do that mechanically within the plan. So that's kind of step one is the distribution methods. What's the next kind of, let's say as an advisor consultant I've solved that with my plan sponsored clients. Where do I think about going next?
Michael Doshier: Yeah. So I think there's three steps. So if you look at it from an investment standpoint, you first look in plan, right? In the plan today, there's going to be something that's likely to be an appropriate retirement income solution for some subset, whether that's the actual QDIA, the target date fund or the balanced account or a managed account that's already a part of the lineup or our good, old, favorite, kind of conservative investment stable value, which is often held in large part by older participants with larger balances. They're already comfortable with it as an investment product. How do you pivot your mindset on stable value as an offer as a specific component to a retirement income generating portfolio, not just a safe haven from a savings standpoint? So that's the first place you look.
The second place you look is retirement income specific investments. There's lots of innovation out there in the marketplace today. We at T. Rowe started in the managed payout space, many firms have. Not a guaranteed solution but something that's targeting a 3% or a 4%, 5% payout and will even include return of principle in order to maintain that level of continuity of distribution. So the income, the paycheck and retirement can be somewhat stabilized or some kind of guaranteed solution, whether it's a deferred annuity or whether it's an immediate annuity. Or there's other innovation there like bond ladder and kind of target maturity types of products.
Lots of innovation in that space, that's the second category and then ultimately, I think the third category is where a lot of the managed account player to get people to go can manage the counts with a specific dedicated retirement income solution to them. Of the managed providers I've talked to today, most of them aren't focused on that element of it yet. They're getting closer as they're getting more and more comfortable with older and older participants. But the participants stay in plan in the retirement phase, the more plan sponsors are designing their plans to be such.
I think we think about how does that managed account solution become a custom solution with an income generating outcome, rather than just a savings outcome. And then there's always the rollover IRA market will continue to be a very effective place where people are going to get the guidance they need from the right advisor. And we know especially as the convergence continues to happen between wealth and retirement, there's going to be forces at play that are going to make that look like more of a level transaction. The DOL is going to require it. The reg BI and the fiduciary rule and those forces are all at play there.
Now that said, that journey from an investment standpoint, part of our framework is getting people to think about income preferences and the risks they're trying to manage. I don't know that we have time to go into that completely here. I'll defer that to you, Josh but getting the right kind of questions to be asked by the personas, the older participants. So you start to get a sense of whether people are worried more about income yield or income duration or income volatility or community or asset preservation. That's a really empowering conversation for advisors and with plan sponsors about where to take those conversations with their plan sponsor clients.
Josh Itzoe: Yeah, as we wrap up, let's talk a little bit about that because one of the things that came out and it's so important to figure out. At the end of the day, participants have very little control over what types of solutions like over their retirement plan experience. At the end of the day, it's the plan fiduciaries and really the plan sponsor plan fiduciaries who are making ... even if they've delegated and outsource the investment selection monitoring, ultimately they are still the architects of the plan and the retirement experience for their people and hopefully leveraging the best thinking of firms like T. Rowe and Greenspring advisors and a lot of these other consultants.
But ultimately, it's still up to the plan sponsor to make the decisions in terms of architecting the overall experience. And one of the things is that there are no neutral decisions that we make. And one of the most important ones is the perception around what I would consider to be longevity risk versus volatility risk. And having that conversation, so even thinking at a QDIA level let's say, how you approach that as a plan sponsor is going to have a really big impact in terms of how you select your QDIA. And then as we continue to evolve all these other what's your retirement income framework that you're going to deploy for your four-year plan and longevity risk essentially just the risk of outliving your money as opposed to volatility risk, which I would consider to be more of the fluctuation in your portfolio.
Too often participants, they think that 65 just look at life expectancies, the average person has a much longer time horizon than 65 years old. And so talk a little bit about T. Rowe's approach to just longevity risk versus volatility risk and how ... because that's something that came up in terms of there seemed to be a lot of alignment between advisors, consultants when they were surveyed around longevity risk and also and plan sponsors around longevity risk. I think it was probably maybe number one or number two for plan sponsors. It was definitely number one for advisors and consultants. There seemed to be a lot of alignment from that perspective.
I'm not sure though that we've seen maybe advisors, consultants do as good a job engaging clients around. Well, what does that really mean? And if we are concerned about longevity risk as we were planning for this, I mentioned that people will tell you the truth through their actions much more than their words. And so I'm not sure the advisory community has done a good job framing the discussion around not just longevity risk but in light of that if we believe that's the highest risk, how are we going to solve for that? So maybe talk a little bit about T. Rowe's approach and how you guys think about longevity risk and because of that, how does that inform what you guys do?
Michael Doshier: Josh, that's an area I love to talk about. As those of us that know T. Rowe from our product offering, our target date suite, you also probably know that we're often sold against as one of the more pretty aggressive … That those decisions are constantly reviewed and actually, we just made some fundamental changes to those products in the last year because we are studying behavioral aspects of people in retirement plans and we're studying ultimately, the largest risk that needs to be managed, which is people achieving the right level of funding status for the retirements.
You mentioned this. Your average 65-year-old could face a 30-year retirement. Let's make sure that's a positive experience. I think it's about 50% chance that one of a married couple of 65 is going to be 94. And so we think about that constantly. We were quite pleased to see and I would counter back to you, Josh, that I think you as an advisor and your peer group have done a nice job in helping plan sponsors see the long range implications of the stewardship of the DC assets while they bought them because both groups, both consultants and advisors in the survey and plan sponsors back and said longevity risk was the number one risk they're trying to manage above and beyond behavioral risk, above and beyond downside risk, above and beyond volatility risk.
All of those are important and every time the market goes through a plummet like it did in the summer, we feel that pain because we know in the short term, our products are probably going to look worse. But we still know that over the long haul, 10 years plus, 15 years plus, 20 years plus, we're constantly in the number one position because of the decisions we're making in the course that we stay. And I think that now people are seeing that. I mean we've gotten better at helping participants not jump ship in the storm.
I think we've also got plan sponsors, maybe the rudder's a little deeper, the tills held on a little tighter to use a shipping or a scaling analogy so that people can stay the course. So we don't discount the anxiety and the answering to retirement committees that come with short-term market volatility, and the fact that downside risk and volatility are real and need to be managed. But longevity risk always floats to the top when you literally empirically measure the impact that has the biggest long-term benefit or risk on participants.
And why do we create retirement plans to begin with? To fund retirement. So I'll pause there.
Josh Itzoe: Well, one, I thought you were going to throw another hockey analogy at me. You switched gears on me and you went shipping like you're doing hockey analogies the whole podcast. So you threw me a little bit of a curveball there to throw a baseball analogy in there. But I do think that that longevity risk is ... and actually as I think more about this, certainly if we do transition and we see more plan sponsors want to keep post retirement assets in the plan, they have to be thinking about longevity. If the goal is like, "Hey, we want to get people to 65, they retire. We want them to get their money out and be on their way."
And then maybe volatility and risk is something more important because from that plan sponsor perspective, it's all what they're trying to solve for. But certainly as life expectancies are expanding and kind of the savings crisis that we have, I do think more and more plan sponsors need to ... I'm not surprised. I was actually pleased in reading the data that longevity risk is perceived as the biggest risk. And it's all about trade-offs. I think that's kind of the threat that you're making certainly from T. Rowe's perspective. If what we're trying to do is optimize against longevity risk then the trade-off is that we're going to have to have some more exposure to investments that are going to create more volatility risk.
You can't solve for necessarily for longevity risk easily without taking on some equity risk. And perhaps over time, and I think maybe with the secure act, maybe what you begin seeing is the ability ... and I think this is likely is how do you start within call it target date funds or QDIAs, maybe what you start to do is you start to figure out a way to get some guaranteed income in there where you can kind of barbell it where hey, we can synthesize some protection, which is going to allow us to kind of maybe take on some more equity risk. That's just the evolutions I think that will take place in the coming hopefully years within the industry.
As we wrap up and this has been a great discussion, I really appreciate your insights and like I said, we will link to a lot of the resources because I think T. Rowe has done a really good job in terms of creating good insights and thought leadership in a way that can help inform the advisor consultant community which in turn can inform the plan sponsor community, which ultimately has the impact on who we all serve, which is the participant.
This podcast is all about making ERISA fiduciary smarter. So what would be your one piece of advice if you were speaking to an ERISA fiduciary, what would be your one piece of advice to help them become smarter and better at their job?
Michael Doshier: Well, since we're closing on having kind of spent time talking income, I'm going to close with some comments there. You mentioned earlier that there's really no neutral decisions being made. There's influences on every decision. I would say to the advisors and the consultants that are out there listening to this is I'd start by just thinking about your inherent business model and reflect on whether or not as retirement income in plan really does continue to gain traction, is there any inherent biases in your business model? Do you not play in the role over IRA space? So then you're just solely focused on trying to accelerate DC and plan. Nothing wrong with that, just be aware of that.
If you're in one of these firms that's both a wealth and a retirement business and you can benefit from either side of that transaction, hopefully you've already started to think about this but make sure you've got the right due diligence and prudence around that process. So you can guide plan sponsors and participants to make the right transaction and make it on the right data and show the pre and post transaction kind of fees and services etc. Or if you're on just the kind of IRA rollover side just be aware that the competitive landscape is changing greatly. And I think it will change dramatically over the next five to 10 years in the DC plan space. Could change some flows for you that you would otherwise not be ready for.
I'd say think about your business model and be very concerned about where some of these changes are coming from. I did hear from a very, very senior leader in the halls of congress not a year ago that they personally still didn't want to call a DC plan, a retirement plan. They would only refer to it as a savings plan until we figured out the retirement income distribution side of things. And then they call it a retirement plan.
So make no bones about it. Most of the regulators and the legislators in Washington feel there is a right answer here and that is that DC plans need to play a more active role on the retirement income side of things. Whether we agree with that or not, I guarantee that is a fact. So just be aware of that, think about your business plan and your strategy moving forward with that as a contextual backup.
Josh Itzoe: I think that is a great way to end and wrap up. Michael, it's been a pleasure. I thank you so much for coming on the podcast and providing your insights. For people that want to stay connected with you or follow T. Rowe, what's the best way to do that? Where can they go to stay up-to-date on what you guys are up to?
Michael Doshier: Yeah, we're very active on LinkedIn. We're also very active on Twitter. They can obviously go to troweprice.com. We have an advisor-centric site. We have an institutionally-oriented site and we also have a direct-to-investor site. So it will ask them to validate the user type and the customer type they are when they come to our website.
Josh Itzoe: Well, thank you so much. And as we enter this holiday season, stay safe. Thanks again.
Michael Doshier: Thank you Josh. Happy to be here.
Josh Itzoe: Thanks for listening to today's episode with Michael Doshier from T. Rowe Price. I hope you enjoyed our discussion and have a better idea about emerging trends facing both retirement plan advisors and plan sponsors. If you'd like more information or to learn more go to fiduciaryu.com. I've got some great resources there for you, including each episode along with show notes, articles, free tools and online courses.
And make sure to sign up on the site, so we can stay connected. I'd love to help you stay in the know about what's happening in the world of corporate retirement plans. And if you've got questions you'd like me to answer, topics you'd like me to discuss, guests you think would be a good fit for the show or any other feedback, I'd love to hear from you.
And head over to Amazon and check out my two books, The Fiduciary Formula and Fixing the 401k. And if you want an easy way to support the show, I'd really appreciate you leaving a review on Apple Podcast. It's the best way to help other people find the show and I read each one. Until next time, thanks again for listening to the Fiduciary U™ Podcast.
Greenspring Advisors is a registered investment advisor. The opinions I express on the show are my own and do not reflect the opinions of my guests or the companies they work for. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. The information and content presented on the show is for educational purposes only, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk, and unless otherwise stated, are not guaranteed. Information expressed does not take into account your specific situation, or objectives, and is not intended as recommendations appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment advisor to determine whether any information presented may be suitable for their specific situation. And past performance is not indicative of future performance.