One Stop Shopping Could Cost You
One-Stop Shopping: The Best Way to Go?
401 (k) plans require three services: plan administration, recordkeeping, and investment advisory services. Some companies provide all three under the same roof. We all know that one-stop shopping saves time and money when you need a bunch of household items, for example. We’re more likely to go to Costco or Home Depot than drive all over town to different stores. But is one-stop shopping the best way to go with your retirement plan?
Not necessarily.
Think of our government’s system of checks and balances. The executive, judiciary, and legislative branches all work independently to make sure laws are passed in the fairest possible way (in theory, anyway)—and to ensure that that no single entity is dictating the law for the rest.
Using different service providers for your retirement plan works like a system of checks and balances. In a one-stop shopping arrangement, a single firm is providing all the services and advice—advice that might be less than objective, since it must necessarily benefit the firm’s bottom line. With no objective party watching over, how can you be sure that the TPA (third party administration) firm is truly putting your interests above its own?
As Ary Rosenbaum, Esq. (Meyer, Suozzi, English, & Klein) puts it:
“An investment advisor who is not independent and works for the TPA will always have a dual loyalty. A loyalty to the client, but also a loyalty to provide a mutual fund lineup that will produce the most in revenue sharing fees. [what is revenue sharing?] Revenue sharing can lead to a potential conflict of interest. Why? Because a TPA investment advisor must provide a fund lineup that, while highly rated, must also produce enough revenue sharing to maintain the cost that his employer (the TPA) is charging to the plan. A TPA investment advisor may sacrifice a higher quality mutual fund because it doesn’t produce as much as a lesser quality mutual fund.”
On the other hand, an independent investment advisor is interested solely in the fund’s performance, since that performance bears directly on the advisor’s reputation and ability to attract more business.
PlanPerfect is a fee-based corporate retirement specialist. Neither we nor our service partners accept commissions. This allows us to be totally objective and unbiased in the way we approach your 401(k) plan. With an extensive network of TPAs, custodians (investment platforms), and recordkeeping firms, PlanPerfect is uniquely positioned to choose providers that are custom fit to your plan’s objectives, and work solely in your company’s best financial interests while providing checks and balances against hidden fees.
With household items, a one-stop shop might save you time and money. But when it comes to your 401(k) plan, this approach might end up costing you—whether you’re aware of it or not.
For real-life examples of how our approach has saved companies thousands of dollars in hidden fees, click here.
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