The Rosenbaum Law Firm P.C. Blog

I always believe that regardless of whether it’s business or in regular day-to-day life, that you can’t be everything for everybody. Being honest with that is only half the battle.

A lot of times, I met folks who are interested in starting a registered investment advisory (RIA) firm.  I get calls for my insight on the retirement plan business, as well as my work in drafting advisory agreements for RIA firms and their retirement plan clients to comply with the fee disclosure regulations (which I do for $1,500 on a flat fee basis, cheap plug) here.  I also get asked whether I could work on their RIA registration or whether they should use one of those businesses that only deal with RIA set-ups and registration. Looking at my experience in doing that and comparing myself to these businesses, I politely tell them that these firms would be a better fit for their RIA registration. It’s not that I couldn’t do the work; it’s just that the fees and length of time in doing the work is probably better by using a business that does nothing but RIA registrations. Perhaps these new RIAs will be a client of mine, perhaps not, but at least I was honest with them.  Again, you can’t be everything for everybody.

I have a friend of mine who works for a great third party administration (TPA) firm in the Northeast. The only problem is that when it comes to smaller plans, the fees are high. Nothing wrong with that, except if you are a smaller plan and were dead set on getting this TPA to handle your plan. Anyway, this salesperson met one of the accountants he was familiar with. The accountant had a lot of opportunity in single employee, defined benefit plans. With a $4,000 minimum for the actuarial work, the salesperson told the accountant that they were better off finding another firm for these plans at less than half what his minimum fee was. Again, you can’t be everything for everybody.

Contrast this with a case at my old TPA. We had a 401(k) plan where the human resources director hated us from day one because we wouldn’t do the work she received from the previous TPA she liked. She was a problem from Day 1, but we took the case because we had a great relationship with a southern RIA firm. So this client was a problem from Day 1, but they seemed to be interested in changing the plan by making it a K-SOP, basically adding an employer stock ownership feature (ESOP) to it.  The client’s advisors asked me about our experience with it and I was honest, I said we had a couple of those cases. Our lack of experience showed up in some of the presentations to the client (of which I was not invited to attend). Story cut short, our lack of knowledge was exposed and not only did we lose the client, the RIA who referred us the client lost the client as well.

Regardless of whether it’s a TPA, RIA, and an ERISA attorney, you know you found an honest provider when they basically tell you that they can’t handle your plan because the plan is not a right fit for their book of business. As a plan provider, you also need to be honest and forthcoming when you can’t do the work. Know your limits and let the potential clients know what they are.

One of my pet peeves out there is when you give a list of complaints to a business or an organization and they give the proverbial “shrug of the shoulders”. The “proverbial shrug” is basically the business or the organization telling you that they aren’t going to merit a discussion of your complaints because like what Jeff Probst tells losing reward challenge participants on Survivor, they have nothing for you.

I always say that everything in business is about communication because it’s a connection business.  Having empathy for clients who aren’t happy with your service goes a long way. Saying that you understand their complaints and that you will try better the next time goes a long way.

Taking the path that apologizing in any way possible is like admitting to a criminal act is only going to exacerbate the tension with the client. Whether the client’s gripes are justified or not (and many times they aren’t because it may contravene the law), they want to be heard.

I’ve learned as the older I get that when I’m unhappy with something, I’ll complain and let my feelings known. When the business or the organization I’m dealing with, tells me that it doesn’t care by not even trying to address a problem, I’m going to be looking for someone else to work with.  

People sometimes complain and all they want is to be heard and acknowledged, they don’t even want an apology. Shrugging your shoulders isn’t the way to go.

One of the great joys of my practice is networking with other plan providers. I enjoy meeting people and meeting advisors out there that I can help, most times at zero cost.  The retirement plan business is a relationship-driven business, so it’s great to create new relationships with plan providers and maintain old ones.

My biggest peeve when it comes to networking is when it’s clear from the beginning that the person isn’t interested in developing a networking relationship but just wants to sell me something or sell something to my clients. I understand like for example on LinkedIn that you try to develop relationships that will help your business. Yet when it comes to networking, I don’t try to sell my services. People know what I do and when it comes to hiring an ERISA attorney for themselves or to refer one to clients, they’ll think of me because I speak in English (not ERISAese) and I charge a flat fee. So while I don’t try to sell my services immediately, I hate when someone connects with me and say itsfrom the get-go that they want to sit down with my clients. Most of my clients come from referrals from advisors and all my clients have advisors, so there is a limit on the business that I can refer and if I’m going to refer an advisor, it’s going to be someone that I’ve known for a long time. I don’t mind connecting with people, but let’s develop a relationship before you try to sell me or my clientssomething.

It reminds me of when I first started networking when I worked for that semi-prestigious law firm on Long Island. I would network and I would run into some insurance agents and instead of wanting to develop some type of networking relationship, they wanted to sell me life insurance. They would promise how they could help me network, but I always thought that someone who wants to immediately sell you life insurance isn’t going to help me network.

Networking is about developing relationships and I think someone who is so upfront about wanting to sell really isn’t interested in networking.

I have been hearing a lot from advisors and plan providers about multiple employer plans (MEPs) with the idea that open MEPs where a plan where the adopting employer have no commonality, but be treated as one plan for ERISA purposes maybe be back in business through a change in the law.

While it’s been 6 years since the Department of Labor opined about their ideas regarding MEPs in an advisory opinion, many of us are still hoping that they’re allowed again especially when states have been allowed to offer IRA products and programs that are far inferior to what private sector plan providers can offer.

While I love the idea of MEPs, they aren’t the perfect fit for every plan sponsor out there. There is the surrender of control (with the liability that goes with it) to the MEP plan sponsor where there maybe plan provisions that the MEP may not offer. Most importantly, the idea behind the MEP is that it’s a cooperative where small plans are grouped together with better pricing and better share classes. Yet, most of the years in the business, I’ve seen too many high cost, insurance-based 401(k) MEPs. High costs MEPs defeat the purpose behind the MEP.  If you want to talk about high-cost MEPs, look no further than the $1 billion MEP that sought the advisory opinion that sunk Open MEPs for everyone.

Open MEPs aren’t the solution for every small to medium sized plan sponsor. Plan sponsors need to identify the cost of joining a MEP and whether the cost is far less than what they have on their own. I’ve seen too many MEP adopting employers that might be better off with their own plan.

Open MEPs can be a great thing if priced accordingly, but it’s still not the solution for every small plan out there.

There is a running joke from my wife where she tells me that despite 13 years of marriage, she still doesn’t know what I do. At least, I think it’s a joke.

One of the problems that I had in my career especially when working with the law firm I was at is that people didn’t understand what I do as an ERISA attorney. I’d sit down with the corporate attorneys and try to create some synergies but they didn’t understand the potential liability of a plan sponsor and they had zero interest in sharing my pitch to their clients.

When I started my own practice, I hired a marketing/public relations firms. The guy I hired was and still is a sweet man. But the problem was clear is that he didn’t understand what I did either. It’s easy to explain what a real estate attorney does, ERISA attorney not so much.  He suggested that I network with one his other clients, a plaintiff-side negligence attorney and I told him that there were zero chances for referrals as accident victims aren’t great referral sources for plan sponsors.

I eventually fired him when the marketing didn’t help with results and he suggested that I should take time off for my own practices. Word to the wise, never tell your client to take a vacation.

Thankfully as a plan provider, you have the opportunity to hire a marketing and public relations firm that knows a thing or two about the retirement plan business. If I had to hire a firm these days, I would only hire one that had experience with the retirement plan business because a firm that doesn’t know what you do, can’t have the background and expertise to help you. Luckily, you have people out there like Rebecca Hourihan and Shari Fitts that know the retirement plan business and can help you out in providing marketing support to help you grow your business. Hiring someone that doesn’t know what you do is not money well spent because the help they will offer will be unfocused on what you need to do to connect with plan sponsors.

There have been around 20 class action lawsuits filed against universities for high cost 401(k) and 403(b) plans. The lawsuits are like shooting fish in a barrel because when you think about it, low costs and higher education tend to be mutually exclusive. I would assume most private universities don’t have the vigilance that plan sponsors do in the private sector in being concerned with fiduciary duties and monitoring the reasonableness of fees.

Thee private universities also tend to have their plans administered by some of the legacy partners of the non-ERISA 403(b) marketplace where low fees don’t exist.

Private universities are easy picking for the filing of a class action lawsuit, but time will tell whether they’re going to settle or lose at trial.

My latest article on JDSupra.com can be found here.

I know a thing or two about the virtues of flat fee billing, have done my legal work on the scale while working for a couple of third party administration (TPA) firms. Plan documents, plan amendments, and plan terminations were done for a flat fee that clients knew ahead of time about the true legal cost and not have a sticker shock worry when they got my bill.

That was a lot different when I worked for law firms for about 3 years. They billed by the hour and I think that billing by the hour is the power to destroy. Law firms feel the need to bill by the hour to pay their huge overhead. Since associates and low tier partners are judged by the hours they bill, that leads to unnecessary billing where associates and partners charge for far more work than they actually did. I certainly know that after hiring attorneys to sue a client of mine that skipped out on a $40,000 bill.

I like flat fee billing because it gives clients that certainty about how much their legal cost will be, rather than worried that the bill at the end is multiple times what they thought it would be.

I know many advisory and third party administration (TPA) implementing or exploring flat fee billing, but I think their businesses are different from my law practice in terms of flat fee billing. Advisors and TPAs have different liability concerns than I do, especially with larger plans. I don’t think there is anything wrong with offering flat fee billing, my only concern is that a provider goes in with a low flat fee that hurts their margins and underlying business by implementing a fee that is too low for the services they offered.

Flat fee billing is an attractive sales point, I just think that providers should avoid setting the bar for a flat fee too low

When the cheaters were caught cheating at a game of blackjack, Sam “Ace” Rothstein wanted to make an example of them at the Tangiers Hotel in Casino. He had the security guards use a hammer on one cheater’s hand and then told the other one: “You can either have the money and the hammer or you can walk out of here. You can’t have both.”

There is so much talk by advisors on how plan sponsors need to be concerned about their fiduciary liability, yet, when it comes to choosing the third party administrator (TPA), there are many advisors who just recommend one that is cheap. They don’t see the value in recommending a TPA that might cost a couple of bucks more but are cheaper in the long run because of the lack of compliance headaches.

I was working with a plan provider who was being told by an advisor that they were more expensive than the other TPA. When I heard of the TPA, I bristled because it’s a low-cost provider who does as bad as a job as one of those large payroll provider TPAs. The biggest threat to a plan sponsor’s liability is compliance errors because they’re easy to create, hard to discover, and expensive to fix. Plans don’t get into trouble with the IRS because the plan doesn’t have an investment policy statement or a small-cap value fund in the lineup. They get in trouble most of the time because something on the administration done was done incorrectly.

So I believe that an advisor who just sees a TPA as a price, rather than a service, is talking out of both sides of their mouth when they caution a plan sponsor about trying to minimize their liability. Friends don’t let friends drink and drive and good 401(k) advisors don’t recommend TPAs just based on price.

My latest article on JDSupra.com can be found here.