Chutzpah is a Yiddish word which means audacity, gall, nerve. A perfect example of chutzpah is about the murderer who killed his parents, but is asking the Judge for mercy in sentencing because he’s an orphan. Over the past 14 years, I have seen some chutzpah from many retirement plan providers.
There was a producing TPA that to the chagrin of one of the insurance companies later, created a stable value product where the TPA would get more basis points in a fee. In return, a retirement plan client that decided to leave the TPA would have to suffer a market value adjustment (MVA) if they changed TPAs because the CUSIP on the stable value fund was tied to the TPA. I know this because thanks to the workings of a TPA that my client moved to, an in-kind transfer avoided the MVA.A stable value expert once called these stable value funds as “roach motel” stable value funds because you may check in, but it would cost you to check out. Thankfully, many of the stable value providers have decided not to offer these types of products.
Low and behold 5 years later, a broker tells me that he may have a potential client from the successor of this TPA and the TPA is claiming that if the potential client terminates the TPA’s service they would suffer an MVA. The only problem is that since the market value of this fund is over 105%, there would be no MVA. Trying to scare your clients into not leaving you, that’s chutzpah. Putting them into that product in the first place to get an extra 25 bps, that’s chutzpah too.