I have a friend who is an insurance agent and she was looking for a new TPA (third party administrator) for her clients.
She previously gave work to a TPA that also happens to sell insurance and financial products (which is called a producing TPA). This TPA is known for pushing expensive insurance products and insurance company platforms for their daily valued plans (regardless of size). I know of a financial advisor who has a client who had a plan with this TPA who was led to believe that their plan had a $5 million life insurance policy when it really has a $3 million life insurance policy in it. Paging New York state Department of Insurance, anyone?
There are those TPA that sell financial products, there are some that sell insurance, and there are those that just administer and record keep.
This story reminds me of another producing TPA that is only a few villages over from where I live. I interviewed for an attorney position there around 6 years ago before my son was born when I was serving as the lead attorney for another New York producing TPA. The owner of this TPA said my TPA was not in the administration business, but in the asset gathering business. Looking back, it was kind of funny because this TPA was consistently butting heads with the IRS over these special trusts with special trustees for these defined benefit plan stuffed with life insurance policies. In addition, I once reviewed a plan of theirs when the plan moved over to my TPA. The defined benefit plan has a normal retirement age of 35! This was not the defined benefit plan for professional athletes, this was a plan for a food wholesaler. This was before the IRS instituted that any normal retirement age before 62 is suspect, so we didn’t take the plan over since I stated that the normal retirement age was not reasonable for that industry and was just used as a gimmick to have inflated tax deductions. In other words, it was a tax evasion scheme.
The lesson to be learned here is that there are some TPAs that are in the insurance selling business, the asset gathering business, and the administration business. Pick a TPA whose main business is plan administration.