Remember when DC record keepers used to offer employers a “free” or no-cost retirement plan?
While those days are mostly over, with more sophisticated employers and experienced plan advisors, aided by enhanced fee disclosure, there still seems to be something of a “hangover effect,” with some plan sponsors looking to pay nothing while trying to get premium service — a result that advisors may be fueling.
Driven by the hyper-competitive 401(k)/DC market with 250,000 financial advisors being paid on a corporate retirement plan and excess capacity by record keepers, many advisors still lead their pitch by offering premium service for very little. While it’s legitimate to blame record keepers for starting the no-cost mindset, advisors have taken up the mantle and continue to run with it, though in the long run it’s harmful to them and their clients.
Case in point: At a recent TRAU program at UCLA, we mentioned a soon-to-be released service that shows CFOs the high cost of employing older workers who are unable to retire because their DC plans are not sufficiently funded using the company’s actual employee census data. Immediately, an advisor, excited about the report, asked if he could get it for free. That mindset permeates an industry where one party pays for services provided to another party paid for by a third party — also known as revenue sharing. The notion that advisors can get whatever support and services they need for free helps to perpetuate the same mindset by employer clients.
It’s about time that we explain to employers that paying “nothing” means getting very little in return. Without a commitment to implement the “ideal” plan, some sort of match and hiring a plan advisor who gets paid not only for the services provided but for the quality of those services, making significant improvements on increased income replacement ratios will be impossible.
