McDonald’s is the most popular hamburger fast food place in the country, but is it better than In-N-Out or Shake Shack? Of course, it isn’t, it’s not even better than Wendy’s. Yet it’s the most popular fast food restaurant because of the vision of Ray Kroc, who was the first person to franchise a hamburger restaurant from coast to coast. Just because it’s popular doesn’t make it good. How many New York area pizza places are better than Dominos, Little Caesars, and Pizza Hut? I think everyone.
The point is that popularity doesn’t mean the best in quality. Yet there are so many plan sponsors that hire a plan provider just because they’re popular. Hiring a plan provider just because of the assets they manage/administer or the plans they handle is quite large on the list of plan providers. Bigger doesn’t mean better, being popular doesn’t mean competent. A plan sponsor that picks a provider that is just going with the flow is breaching their fiduciary duty if the popular choice isn’t a competent one. There are a lot of reasons that a plan sponsor should hire a certain provider, just being popular isn’t one of them.
My latest article for JDSupra.com can be found here.
I know of a financial advisor for a very long time, so long that he was focusing on fees, good fiduciary management, and fund performance, way before fee disclosure and other advisors made it fashionable.
Yet, I heard from him lately and he was telling me he was working with a third party administrator (TPA) with a less than sterling reputation when it comes to compliance errors. A financial advisor who talks about good fiduciary management and refers clients to bad TPAs is like the person talking about healthy living and smokes 3 packs a day.
As a financial advisor, you need to understand that good fiduciary practices by the plan sponsor client isn’t limited to the work you do. You need to understand that hiring a good TPA by your client goes a long way to avoiding compliance headaches for the plan sponsor. It doesn’t matter if you’re doing a great job as an advisor if the plan is in shambles because of poor compliance.
I have a lot of opinions and I’m not afraid to express them. One of the things that get me upset with businesses and organizations is unmet expectations. Whether it was my law school or some legal staffing agency when I was starting out, there is nothing worse than being told that you should be expecting something and for that business or organization to fail to deliver.
As a retirement plan provider, you should never overpromise and undeliver. If you promise clients the moon and you deliver something short of that, your clients will never forgive you for that. I’ve worked for third-party administrators, I’ve worked for law firms, and I’ve been on my own now for almost 9 years. So I know that the easiest way to lose clients is to promise a level of expectation and service that you fail to deliver. It’s just simply because if you promise that level and immediately fail to produce, the client will certainly know that from the start and will already consider replacing you from the get-go With clients, you always want to start on the right foot and I can say that most relationships with plan sponsor clients usually end after they get off the wrong foot at the start.
With Fidelity being under fire for “shelf space payments” from mutual fund companies to appear on their platform, it’s not surprising that ERISA litigators smell blood in the water like the sharks people think they are.
Three 401(k) plans sued Fidelity over these payments, claiming that the fee, which Fidelity characterizes as an “infrastructure fee,” increased fund expenses and wasn’t disclosed to 401(k) clients. The plans claim that’s a breach ERISA, which requires disclosure to plan sponsors of such marketing and distribution fees under ERISA Section 408(b)(2).
Years ago, I predicted that plan provider would develop new fees to offset the loss of revenue sharing and Fidelity’s own internal documents cite this as a reason for requiring payments from the mutual fund companies.
Fidelity is claiming that the practice of charging an infrastructure fee (or as I call it, “shelf space payments”) to certain mutual funds is because there is a cost for maintaining the systems and processes required for record keeping, trading and settlement, communications, and support for customers over the phone and online. They will also claim that the fee is not charged to plan sponsors or participants, so no disclosure is required.
While Fidelity may not have been required to disclose this to plan sponsor and plan participants and might win these cases on summary judgment, I believe that the Department of Labor will eventually close a loophole by suggesting that these payments should fall under the fee disclosure regulations because a plan provider (Fidelity) is receiving an indirect fee for their services.
It should also be noted that there is at least one other plan provider that does charge a “shelf space payment” and I’m sure you’ll hear about it when they get sued.
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My latest article on JDSupra.com can be found here.
Rocky Balboa explained to Adonis in the movie Creed, that he beat Apollo Creed for the heavyweight title because of time. Rocky said: “Time takes everybody out; time’s undefeated.”
What does that mean? That means time will eventually take out anybody and anything. Sears was the nation’s greatest and largest retailer, it was Amazon before Amazon. Yet time and complacency (as well as mismanagement) did Sears in and Sears saw the same thing happen to Montgomery Ward and apparently, didn’t take any notes.
There were a whole bunch of plan providers that went out of business after the Tax Reform Act of 1986. There were plenty who left the business after fee disclosure regulations. Time gets the best of everyone, time eventually gets to everyone.
How can you prolong time not getting to you? Always be a couple of steps ahead, don’t live in the past, and never be complacent.
Going to the movies was never fun. The theaters were dirty and if you arrived late, then you’d end up in the front row plus the menu was limited to popcorn, candy, and hot dogs.
A funny thing happened: movie theaters realized that if they improved the overall experience, they can increase ticket sales even if they decide to pull out more seats to make way for reclining chairs. They also realized that if they add more items to their menu, they will sell more food. Some location even added a bar. Ever since my local AMC theater was updated with recliner seats and reserved ticketing, I’ve yet to go back to the other theaters with the old style seats.
Improving the comfort level of theatergoers will increase the likelihood, that they will come back and buy more tickets. It’s the same thing for your plan sponsor clients. Improving the experience where it’s easier for them to work with you is going to help increase the experience and maintain the client. That experience improvement could be technology, it could be something as simple as offering help with completing the census file or adding a free plan review from a well known ERISA attorney (cough, cough). Whatever it is, realize that comfort and ease goes a long way to maintaining that client.
Ever since the Internal Revenue Service opined that one particular 401(k) plan could use matching contributions instead to help employees pay off your student loans. On paper, a great idea since I love options. As with any idea, everyone is trying to copy it.
Providers are now going to try to offer a student loan-match program and my only question is how popular will they actually be? Student loans are choking the finances of anyone who has to pay them off, especially those who just graduated I still have loans that my parents are paying and that was over 20 years since I graduated. In order for employees to get the match to pay off student loans in these programs, they’re going to have to defer and if you have student loans to pay, deferring in a 401(k) plan might not be possible.
So these match student loan programs might be a great idea, there might not be enough of an audience that can afford to use them.