There’s a lot of talk about the dangers of fee compression—of the implications of the so-called “race to the bottom.” But are you actually part of the “problem?”
One of the most complicated areas of our business is participant recordkeeping. It requires pristine and highly personal data, an intimate knowledge of, and ability to apply, specific plan document provisions, expertise regarding tax laws, and provisions which are in a constant state of flux—oh, and it has to be 100% perfect every single day. 
We all know this, and yet it is routinely said to be a “commodity”, “fungible” —not only in litigation, but even among those who have leadership responsibility for that service. Sadly, those are labels that apparently justify a consistent pressure to reduce the fees paid for those services.
The inevitable result of those pressures—to do ever more—for less—has led to waves of consolidation as one recordkeeper after another succumbs. These exits—essentially forced transfers of data and dollars—are disruptive to plan sponsors and participants alike (and not in a positive manner). Precious time and money are expended in many cases—and to no great advantage for the plan sponsor or their participants.
The net result—fewer choices, less time spent on enhancement of capabilities, and still more fee pressure.
Make no bones about it—this cycle has many causes. But the accelerant in (too) many cases can be traced to advisor efforts, however laudable, to wrest from the recordkeeping platforms an expanding list of services and support—while at the same time demanding concessions in fees and fee structures.
The reality is that there are real differences in the quality, if not the quantity of recordkeeping services. This we know.
So—please quit dismissing these services as “fungible.” Consider the significant costs required to support the technology, the personnel skills, not to mention the cybersecurity firewalls and controls—and allow for a reasonable profit that can sustain the integrity your customers require.
Said another way—please stop trying to put recordkeepers out of business. Before you don’t have any choice.
Just Sayin.’
Todd Kading is President and CEO of LeafHouse.
About LeafHouse
LeafHouse specializes in creating investment solutions for retirement plans including investment fiduciary services, manufacturing investment vehicles, automated personalized portfolio programs, and enterprise technology solutions.
LeafHouse is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about LeafHouse including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request. Past performance is not indicative of future results.
