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Think Like a Lawyer, Act Like a TPA But Be an Entrepreneur

The profession of a DC plan advisor is evolving quickly as attention and concern about 401(k) and 403(b) plans grows.

These days there are a lot of constituents involved including employers, employees, lawmakers, providers and broker-dealers/RIAs, but the main relationship for an advisor starts with plan sponsors.

Employers are starting to wake up and pay more attention to their DC plan, which means advisors have to step up their game — making sure there are attuned to their client needs but, also designing a business that produces a profit. That combination of factors is why advisors should think like a lawyer, act like a TPA but be an entrepreneur.

Think Like a Lawyer

Though only a few smaller DC plans have been sued to date, plan sponsors of all sizes are paying attention to the rash of 401(k) and now 403(b) excessive fee lawsuits. The concern is how companies fulfill their fiduciary responsibilities in a prudent and documented manner. That comes down to two basics:

1. The plan is designed in the sole interest of participants.
2. The plan fees are reasonable.

Any obvious conflicts of interest must be eliminated and plan fees have to benchmarked regularly with periodic RFPs. Thinking like a lawyer will help your clients avoid fiduciary liability, a big concern of plan sponsors looking for more fiduciary education for their investment committees.

Act Like a TPA

Beyond fiduciary concerns, plan sponsors are worried about compliance and whether their plan would be subject to fines if audited by the DOL. A well-designed plan will not only be easier to administer, but also help more employees prepare for a successful retirement.

Be an Entrepreneur

Advisors focused on DC plans have realized that it takes a team and resources to successfully run a business. However, managing people and resources while partnering with the right vendors is a skill that many advisors lack. Most don’t have formal training, either at business school or within big corporations, and successful advisors often succeed because of sales or investment skills. But even if you are great at picking investments, are a crackerjack sales person, keep clients out of trouble and design plans well, you may go out of business because you are not a good entrepreneur and can’t figure out how to make money consistently while building a team.

Advisors can get caught up with new regulations, lawsuits and compliance, as well as shifting investment markets, but those who want to build a successful DC business, not just a practice, need to keep sight of the bigger picture. One measure of whether you are a good entrepreneur — do you think you could raise money, and at what valuation? Is your business a good investment?

Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.

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