For many who sell 401(k) plans the idea of outsourcing participant advice may seem bizarre. After all it means that you’re doing less for the plan … doesn’t it?
IMO it doesn’t and it actually may be an opportunity to differentiate your practice in an increasingly competitive industry. It may mean, however, that you need to shift your approach to servicing a 401(k) plan.
Historically many who sold 401(k) plans either provided participant level services themselves or simply used what was available through the recordkeeping platform. The idea of outsourcing participant advice started to take hold recently for two main reasons:
- Recordkeeping solutions are typically underutilized. Charles Schwab released a study that indicated less than 10% of plan participants use the integrated advice solution.
- Increased regulatory focus on prohibited transactions has caused many advisers (particularly those who actively pursue rollovers) to evaluate whether outsourcing participant advice may reduce liability for both the adviser and the plan sponsor.
Here is a third reason to outsource – it differentiates you and enhances your role as the Plan quarterback. The Plan QB’s job is to help the plan sponsor select the various vendors for the plan, monitor the vendors and suggest changes/alternatives when appropriate. In other words, you are an expert in plan structure. Here’s how you elevate your role:
- As Plan QB you can either accept the participant advice solution that the recordkeeper brings to the table or you can take a proactive approach and help your client evaluate several options to determine the most appropriate solution for their plan. This could end up being the integrated recordkeeping solution, but you should know for sure.
- Are you willing to fire yourself? Monitoring service providers is a large part of a Plan QB’s job. Participant advice is a service to the plan and should be monitored for success as well as failure. So if you provide participant advice and do not meet the standards set by the sponsor, are you willing to fire yourself from the role of participant advice provider?
So what’s the pitch to plan sponsors?
A participant advice provider can help mitigate the “investment risk” associated with the plan. In order to mitigate this risk the participant advice provider should be prudently selected and monitored. In the role as the Plan QB/Consultant you will help the Plan Sponsor select the solution that is most appropriate for the plan. You will also monitor the provider that is chosen to make sure the participant advice provider is delivering the service they said they would and to evaluate whether the fee paid for the service is reasonable.
This is of course my opinion (and yes my company does provide participant advice). I’d love to hear your opinion on the subject.
Smart401k President & CEO
Smart401k is a Web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at Smart401k.com.