Over 20 years ago, some of today's leading retirement plan advisors built their businesses on the principles of loyalty while helping plan sponsors lower recordkeeping fees. While it took some prodding to get plans to do RFPs of record holders because most claimed to be happy, the results have been much better service at a lower price and fewer providers.
Data holders initially complained and questioned the need for what they claimed was an unnecessary and time-consuming exercise, but advisers were able to convince plan sponsors that it would result in a much better plan for them. and their employees at a lower cost and that it was theirs. fiduciary duty to ensure that fees paid to vendors outside plan assets were reasonable. The wave of lawsuits focused on tariffs didn't hurt either.
All of this is likely to happen for RPAs that have trained their customers well, but it is also likely to happen more slowly than with data holders and investments for three reasons. First, no one pushes them to do advisor due diligence. Second, many plan sponsors are in a “relationship coma” thinking everything is fine and are uncomfortable with someone they know moving. Third, they don't have the knowledge, resources, or third-party expertise to conduct a meaningful RFP or due diligence.
As the plan's sponsors wake upthis is about to change for good reason and to comply with the law, which will result in a much better plan for the organization, the employees and the internal administrator.
When you lack experience or have only had one advisor in your plan, many plan sponsors are under the illusion that their advisor is doing a good job. More plans are using qualified advisors while fees have fallen organically as new ones generally pay less, but we have a long way to go. Even if the adviser is good, there is still a requirement to perform due diligence.
But many plan advisors are not qualified and are not serving their clients well, especially for plans that hired their advisor when they were younger.
While comparing advisers is useful, quick and less expensive, it can be very dangerous. First, they look back, not what an advisor is willing to charge in the future. Second, the results can be manipulated depending on the data set used. And third, perhaps most importantly, if an advisor is performing due diligence on themselves, the results will be biased – would any truly good advisor allow providers and asset managers to rate themselves ? Advisors may act as an objective fiduciary for other vendors, but not for themselves.
The advisor relationship is as important to plan sponsors as our doctor is to our family's health, yet plan sponsors spend less time finding and monitoring them. And while almost all RPAs, especially the good ones, would agree that plan sponsors should and even are obligated to conduct proper independent due diligence, very few advocate it for clients and prospects they think might be closed without an RFP.
Even if advisor fees aren't falling as fast as they would with less scandalous situations, the reality is that plans mature so the price for a $50 million plan that was once a $5 million plan should be different, especially as we see more flat fees instead of assets. based fees. Plan sponsors cannot expect their advisor to voluntarily lower prices as the plan grows, as record holders did and did not.
And while more plans are looking for their RPAs to work with and assist their employees, many of the current ones that focus on plan-level services are not qualified. Some RPAs work with larger plans for participant services, while the institutional investment consultant oversees plan-level functions. This trend is bound to move down the market, but it is likely that the new advisor will work with the plan and participants albeit at different prices.
RPA acquisitions will also increase turnover not only because there may be a change in relationship, service and cost similar but different than when a record holder sells, but because that senior advisor is likely to leave at some point after their payment, while the best and brightest young members can leave by starting their own firms.
Counselors and providers cannot be expected to give away their services or sacrifice unreasonably. But those who focus on helping clients while charging a fair and reasonable fee will ultimately do better than self-serving paranoid professionals. In other words, doing good by doing good.
And just like what happened with record holders more than 20 years ago, once this trend gains momentum as plan sponsors wake up, really good RPAs will support and advocate for proper independent care, as they know they will win more than they will lose, just as the surviving and thriving record holders did and currently do.
Fred Barstein is the founder and CEO of TRAU, TPSU and 401kTV.