What Financial Advisors Really Do

One would think that the role of a retirement plan financial advisor is to pick plan investments. Most plan sponsors think that way and some financial advisors think that as well. Some financial advisors promote their brilliant picking of actively managed investments and I really think those that do really miss the boat of what the role of a financial advisor is.

Sometimes, I see the role of a financial advisor as the concierge at a hotel. The concierge is supposed to fix any issues and score you the sold out tickets to the show you want to go. While the role of a financial advisor isn’t the same as the concierge, it is similar because it’s a position of service. If you have a problem with your third party administrator or ERISA attorney, it’s usually the financial advisor that is called in to help.

Again, picking funds for a participant or trustee directed plan is only part of their job. A good financial advisor will help the plan sponsor pick investment options, but create a process that justifies the selection of those investments. It’s the development of an investment policy statement (IPS), review of investments against the IPS, and offering participant education and/or advice. Too many advisor pick a fund lineup and never see the client again, but they collect their quarterly fee. Those are the financial advisors that are going to get swamped because you see more financial advisors who get their role, limiting the plan sponsor’s liability in the fiduciary process. No ifs, ands, or buts.

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You don’t need to think just happy thought about the retirement plan business

When I was at law school at American University Washington College of Law, I was the Executive Editor of The American Jurist. The Jurist was the student newsmagazine for my final year of law school.

I wasn’t a particularly fond fan of my law school; I think they made promises to students that they couldn’t deliver on and some of the great opportunities like their law clinics were only available to a small group of students. For example, while I was led to believe my interest and coursework in tax law would merit me for consideration in the tax clinic, I did not get a slot for the tax clinic because my name was literally not pulled out of a hat.

So my year as the top editor was dedicating my columns to lambast what was wrong with the school and suggestions on how to improve certain aspects of it like the career services office, the journal and law clinic selection process, and orientation.

Certain students and faculty were very critical of my views because they said my columns would have a negative impact on the school because potential students would read the columns and then not got to our school because of what I wrote. It was pure nonsense because my columns criticized the school and then offered suggestions on how to fix the problems I pointed out. After I graduated, many of my suggestions were acted upon by the administration and I am proud of my role in helping the school out.

People don’t like criticism; they can’t handle it. If you criticize, you get labeled as a hater. It’s a label to discredit you and your opinion. I see it all the time in my village where people who criticize what’s going on in Oceanside are told to move.

Sometimes, people who are critical of the retirement plan business and rightfully so are told that their criticism will have a negative impact on the business. History has shown that there were certain abuses in the 401(k) plan business (there still are) and keeping quiet about them won’t help in creating change to eliminate abuses.

My point is that there are enough problems within the retirement plan industry to criticize and simply attacking those that do is certainly not going to help the industry out. Those that try to shout down those 401(k) critics do a disservice to the industry because it’s those critics on fees and investments that have helped spur change within the 401(k) industry.

That being said, there are those who consistently attack 401(k) plans without a suggestion to improve them or a realistic way to help the retirement savings crisis in the country.

When managed correctly, a 401(k) plan is one of the best employee benefits out there that has helped plan participants save for retirement and lower their current taxable income. People within this industry don’t have to be like Anthony’s neighbors in the Twilight Zone episode “It’s A Good Life” and think “nice, happy thoughts.” If you see something wrong within the industry, say something and offer a way to make things better.

Those that believe that the retirement plan industry is perfect and call those that criticize it are haters are members of a flat earth society who don’t have tolerance for the free flow and exchange of ideas. There is a lot of right and wrong with the retirement plan business, don’t be afraid to speak up in trying to improve it.

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Beware of Insurance Brokers Masked as TPAs

A friend of mine who is a financial advisor asked me about a third party administration (TPA) firm that is actually about a village over from where I live in Long Island. My friend has this prospect with a defined benefit plan handled by this TPA.

The name of the TPA brought a smile to my face and I quickly gave him a call. While I was the Director of ERISA Legal Service at a medium size producing TPA in New York City, I did interview at this TPA in question when my son was born almost 12 years ago.

The owner of the TPA interviewed me and said that the TPA I worked for was not in the TPA business, but in the asset gathering business and he was in the TPA business. He advised me the position would pay the same as my current job, but I would actually report to a paralegal as my supervisor. The owner of the TPA advised me that they battle quite a bit with the Internal Revenue Service (IRS) because they tend to push the envelope in plan design.

Between the lack of a pay increase and the fact that the company appeared to be small potatoes, I politely declined the job offer.

A year or so later, my TPA was going to take over a defined benefit plan and a 401(k) plan from a food wholesaler. I reviewed the 401(k) plan and the plan was in order. The defined benefit plan had an issue; the plan listed the normal retirement age of 35! This was prior to the IRS implementing a rule that any retirement age in a defined benefit plan less than 62 was suspect, unless facts about the specific industry that the employer was in showed that this was the standard retirement age in the industry. This is done to ensure that companies don’t make the defined benefit plan into an excuse to make excessive tax deductible employer contributions.

So I remarked to my boss that an age 35 retirement age in the food industry is unreasonable. I stated that it would be reasonable if it was a pension plan for Major League Baseball Players. Actually, a financial advisor who works with athletes proved me wrong, he said their retirement age is 42.

As it turns out, many advisors and other TPAs told me that the TPA down the road for me is really an insurance mill. All the plans are less retirement savings vehicles, and more like insurance holding entities. So while my firm was in the asset gathering business, the owner of that TPA was in the insurance selling business.

Insurance in a retirement plan is like drinking alcohol, moderation is key. A little plain vanilla, whole life insurance can be a great asset for any retirement plan. It is when I have seen plan sponsors forfeiting whole life policies because they no longer meet the huge premiums of the policies in the Plan, only to discover that their agent puts his needs instead of his clients.

It is no surprise that the IRS has been cracking down on abusive insurance funded, retirement plan vehicles.

I stick to what I know, so I don’t provide financial advice or administer plans. So I think insurance sellers masking as TPAs should stick to what they know, selling insurance.

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Free Advice For 401(k) Plan Sponsors

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Ascensus is becoming a big time player

The first job I had was working as an ERISA attorney for a small law firm that was affiliated with a third party administrator (TPA) called CBIZ Retirement Services, Inc. Let’s just say that CBIZ wasn’t much of a moneymaker, so that block of retirement plan administration was sold to a TPA called Bisys and I was going to be out of a job. I did get a new job before the deal and transition was completed, but Bisys didn’t have the best reputation when it came to the retirement plan business.

Bisys knew they didn’t have a great reputation, so they changed their named to Ascensus and I have seen firsthand their commitment to quality plan administration. They say leopards can change their spots, but Ascensus did. They have become a quality big time provider and they deserve the credit for turning it around.

I was surprised and not that surprised when I found out that Ascensus bought Kravitz. Kravitz has a strong reputation for their cash balance plans and if there is a missing niche for Ascensus, it would probably be cash balance plans when combined with 401(k) plans. This transaction is what we have been seeing for years, consolidation in the marketplace and any big time 401(k) plan provider needs to realize that a balance forward/defined benefit plan practice is something they need to have because it’s a possible solution for plan sponsor. If a TPA doesn’t have the right solution for plan sponsors, then plan sponsors usually find the TPA that has all the possible solutions under one roof.

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Just tell them straight

One of the big parts of my practice is assisting third party administrators (TPAs) who cant or don’t want t afford an ERISA attorney on staff.

I recently had to answer correspondence regarding the payout of a participant who was deceased and still required to take out the required minimum distribution (RMD). The beneficiaries of the deceased claim that the TPA advised them that they could take the RMD and roll it over. The only problem is that law won’t allow them to do it.


The initial response by the TPA wasn’t wrong, it was just full of a lot of jargon that really didn’t fully answer the beneficiaries’ concerns. I helped with the second response and just fully explained that no matter what they were told they could not rollover an RMD because it’s not an eligible rollover distribution.

Rather than go through a lot of words, it’s just a lot easier to tell them straight and just tell then what they can and can’t do with the deceased participant’s benefit.

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Pitfalls a 401(k) Sponsor Can Avoid With Plan Providers

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