Under 401(k) and 403(b) plans. have evolved from Additional savings plans to financial assets and holistic benefits, so does the role of the RPA, which is arguably the most important salesperson for retail plan sponsors.
The evolution of RPAs and the awakening of plan sponsors have coincided, promising not only greater benefits for plan sponsors but, more importantly, participants. RPAs emerged in the mid-to-late 1990s as some wealth advisors and benefit brokers saw opportunities for managing 401(k) plans. Fees were much higher, little was expected of uninformed plan sponsors, and liability was limited. With every recession and significant market correction, the sticky cash value in 401(k) plans and steady income streams become more attractive.
RPAs, especially independent wealth advisors, focused on fees, funds and fiduciary services that fed into plans managed by authorized representatives and insurance agents, most of whom had little DC knowledge. Not only were they able to expose scandalous advisor fee arrangements, but RPAs were also able to significantly reduce data keeper costs through RFPs. Leveraging a growing number of third-party vendors such as fi360 and RPAG, these RPAs were able to review and analyze investment plans, ultimately reducing fees through index funds and, more recently, CITs. Finally, they were able and willing to act as co-fiduciaries properly aligning their interests.
Many RPAs are stuck in Triple F business models sailing along the “sea of sameness” by not keeping up with the evolution of DC plans, which not only means providing holistic financial education, guidance and advice, but also integrating all benefits. Their fees have fallen as the Triple Fs' services have been commoditized by elegant third-party investment reporting, recordkeeper benchmarking and RFP services, while some providers like Morningstar are willing to act as co-fiduciaries. for some basis points.
As retail plan sponsors awaken from being consciously incompetent to being consciously competent, their expectations of their RPA are increasing. Fidelity 2023 Investment Plan Sponsor Survey, “Increasing complexity creates opportunities for greater advisor influence,” indicates a disconnect between plans and advisors. Plan sponsors want an unbiased and reliable advisor who saves them time and helps their employees, while advisors feel that fees, funds and a wide range of services are most valued. The proverbial, “when the only tool you have is a hammer, the whole world looks like a nail”.
So while it may be impossible or at least impractical to rate the 12,000 RPA specialists and 60,000+ players as the top 20-25 record holders, there is a simple method for plans to rate and review their RPA called “ELI Rating”. along with due diligence required.
The “E” stands for ethics pass/fail through FINRA and SEC databases along with simple Google searches.
Leadership or “L” represents whether an advisor is proactive by calling committee meetings and taking notes, conducting employee surveys and suggesting new tools and services such as managed accounts and retirement income.
Finally, the “I” is for impact – do the suggestions and actions have a positive impact on the three parties in a DC plan, which include:
- Participants and qualified workers
- Internal administrators
- Sponsoring company or organization
As with record holders and investments, Documented due diligence by a prudent and unbiased expert of a plan's advisor is required, whether for a benchmark, RFI or RFP. It's not just good business practice; required if the advisor is paid from plan assets. As the plans awaken, expectations grow, though many don't even know what to look for.
During a recent advisory RFP conducted by TPSU, the plan sponsor indicated that they were very satisfied with their current leader, who met periodically with the committee and participants. That counselor didn't even make it to the finals. Another plan sponsor about to conduct a KPF asked if their advisor should oversee their data keeper and TPA because their administrator is only willing to review the plan's investments.
As advisor fees fall and plan sponsor expectations rise, as do costs, especially for labor and technology, RPAs look to participant services, which is natural and necessary. However, some may be tempted to recommend proprietary or third-party services for which they are paid additional fees or commissions rather than being compensated for evaluating and monitoring them as they do with the plan's investments.
And while paying extra to be a 3(38) fiduciary can be justified in some cases whether for managed accounts or retirement income, it opens the door for other advisers to question whether the services are worth the cost and whether there is a conflict. just as many well-heeled RPAs did when they replaced non-specialists decades ago.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.