I always believe that when it comes to plan documents, amendments, and contracts that less is more. Some attorney always feel that they have to justify their fees as if they are billing by the word they are drafting legal documents. I guess when I bill at a flat fee, I guess I don’t have that problem.
I have been doing a lot of work with RIA firms and third party administration (TPA) firms on revising their agreements for fee disclosure at a flat fee of $1,000 (cheap plug). When it comes to fee disclosure and reviewing agreements for TPAs, I actually believe that more is more.
One of the fears (which I believe will be unfounded) is that fee disclosure will only benefit the low cost providers because disclosure of fees will lead plan sponsors to choose the cheapest provider. I disagree with that notion because I don’t believe that cost will be the sole or major reason why plan sponsors change their plan providers. When it comes to changing providers, I think value is more important than cost. There are too many TPAs who are low cost and offer either low service or negligent service.
The fee disclosure notice that plan sponsors will receive will effectively serve as an invoice for a TPA where for the plan sponsors that do their job, will be the piece of paper they will use to gauge whether the costs they are paying for this TPA is reasonable. The problem is that I believe that plan sponsors don’t know the value of a good TPA, they don’t understand that a TPA does a little more than recordkeeping and issuing a Form 5500.
To thwart off the lesser expensive TPAs that don’t the heavy lifting that many good TPAs do, I think TPAs need to list all of the services they do for their client. I swear there are some TPAs that do so much hand holding for their clients that they pick up and drop off their dry cleaning. At least it seems that way.
So if a TPA does a whole lot of work for their clients that are outside the scope of what other providers are willing to do (usually payroll provider TPAs), then the TPA should list that service on their fee disclosure (whether they charge for it or not). Suppose a plan sponsor just gets a fee disclosure that is skimpy on details (even though the TPA does so much work for them) and picks a provider that is less expensive. Unfortunately, the plan sponsor may learn a little goo late that the less expensive TPA won’t do all the work that the prior and actual full service TPA did.
That is why TPAs shouldn’t be shy when it comes to disclosing their fee and the breadth of the services they offer their client. At least that’s my 2 cents on disclosure, marketing, and retention tools for a TPA.