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Is One-Stop Shopping the Best Way to Go?
We all know that one-stop shopping saves time and money when we need a bunch of household items. We’re more likely to go to Costco or Home Depot than drive all over town to different stores.
401(k) plans require three services: plan administration, recordkeeping, and investment advisory services. But is one-stop shopping the best way to go with your retirement plan?
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 and enforced in the fairest possible way (in theory, anyway)—in other words, 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.
Using different service providers for your retirement plan works like a system of checks and balances. In a one-stop shopping arrangement, however, 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 third party administration (TPA) 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.
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 [revenue sharing] 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. We don’t accept commissions. This allows us to be objective in how 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 meet your plan’s objectives and work solely in your company’s best financial interests. We are also a check 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 be costing you—whether you’re aware of it or not.