As a defined contribution from small to medium size the sponsors of the plan wake up moving from unconsciously incompetent to consciously incompetent on the way to becoming consciously competent, finding service people and organizations they trust becomes critical.
These plan sponsors are in difficult positions, most of them thrown into their jobs with little or no training and limited resources still trying to understand the roles and responsibilities of advisors, data custodians, TPAs and companies. funds. At this stage of their awakening, the focus is on the competence and knowledge of the partners, but as they become more aware and comfortable, they will ask, “Who can I trust?”
Belief is built on facts, but eventually becomes an emotional response. In the main book, The power of trust: How companies build it, lose it, win it back Authors Sandra Sucher and Salene Gupta write, “To trust is essentially to become vulnerable to the actions of others. We trust because we trust that they will do good by us… trusting that they will not abuse this power.” It can take years to build trust and moments to lose it, taking even longer to regain it.
The whole concept of DC plans is based on trust – starting with banks acting as administrators and custodians. Employees trust that their employer will take care of their retirement savings, while the company trusts record keepers, custodians and money managers overseen by co-fiduciary advisors and consultants to get the job done. There are strict laws under ERISA, which carry the highest fiduciary responsibility recognized by law in the world, governing all of these parties, beginning with plan sponsors.
Having personally conducted hundreds of half-day training programs for plan sponsors, I feel the tremendous pressure they are under, including:
- Am I doing the right thing by my employees?
- Will I lose my job if I don't do these tasks correctly?
- Who can I trust to help me, my employees and my organization?
Trust is a rare commodity these days as politicians are casting serious doubt on the electoral process for the first time I can remember, there is more concern than ever about the media not only because of the proliferation of unmonitored social media, but because powerful people are labeling what they don't like as “fake news”. and AI can create fake realistic photos and videos. As more of our data is available, it makes us more vulnerable to hacking and abuse.
DC plan sponsors are right to be skeptical of our industry with fees largely hidden within revenue sharing, not to mention the unreported platform fees paid by fund companies to record holders and advisors to acquire positions. favorable. It is the 408(b)(2) and 404(a)(5) fee disclosure forms that are largely misread and misunderstood. There's a reason only 15% of the largest plans use revenue sharing, according to a Callan's recent study.
Although DC insiders dispute the lawsuits, there were real abuses that these actions corrected by making plans more conscientious. And when trust is lost or nonexistent, we turn more to laws and regulations with agendas set by politicians and lobbyists rather than by stakeholders.
The convergence of wealth and retirement at work, as well as fee pressure, could make matters worse as advisers and recordkeepers look for ways to generate income that may not be in the best interests of plans. and their participants, possibly leading to data abuse.
In what has become a highly litigious world with an increasing number of laws and regulations, trust becomes essential. And the most important player, especially for smaller and mid-sized plans, is their retirement plan advisor. If plans truly believe that their RPA is looking out for them, their employees and their companies by putting their interests above theirs, there is no limit to where these relationships can lead, which will drive convergence for the good of everyone.
How do you build trust? Do reliable things. How do you miss it? Put your own interests ahead of others whom you are pledged to protect and serve.
Because when trust is lost or non-existent, we rely on rules. When the rules are not respected, we resort to legal proceedings. When all else fails, the government will take over and nationalize the DC system and we'll only have ourselves to blame.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.