How Retirement Plan Providers Can Avoid Having A "Communication Breakdown" With Their Clients

The curious case about the one family fund lineup.

Fidelity being sued by a former employees for only using Fidelity funds in their 401(k) plan.

You must know about the shoemakers' children and how they go barefoot and have no shoes. In the retirement plan industry, we have retirement plan providers and their employees' retirement plan.

I know, I have been there. The third party administrator I worked for didn't have a great plan, it was often alleged we switched platforms to salvage our premier  pricing with a certain insurance company.

So for me, it's no surprise that Fidelity is being sued by a former employee over their own 401(k) plan. While I don't know all the facts and it will be decided in the courts, one fact (if true) fascinates me.

I often waste time analyzing irrational behavior through rational eyes and I always ponder: "what were they thinking?" So when I hear that part of the complaint is that all of the mutual funds in the Fidelity plan were Fidelity funds, I ask: "what were they thinking?"

When you have thousands of mutual funds out there and hundreds of mutual fund companies, it's just amazing that any plan sponsor (whether it's a mutual fund company or not) thinks it's prudent that every fund on the plan's lineup is from the same mutual fund company. It doesn't look right and it doesn't look prudent, especially when there is no mutual fund company that has superior success in every sector of the market. In addition, any plan that only has funds from the same mutual fund company are often being administered by bundled providers who are mutual fund companies (i.e, plan being administered by T. Rowe Price with only T. Rowe Price funds). How is a plan sponsor able to offer a rational explanation that it was prudent to select mutual funds from one company? I don't think they can, especially when the mutual fund company is one of the plan providers.

Often in the retirement plan business, if it doesn't look right, there is usually something wrong. Any plan using the mutual funds from only one mutual fund company is a plan with something wrong.

Life after fee disclosures.

Now what for plan providers?

It was a great opportunity to speak in front of over 100 attendees at the Schwab National Conference in Scottsdale, AZ.  The audience was primarily third party administrators and registered investment advisors.

The speech was about life after fee disclosure and some ideas that I had concerning how plan providers can compete in a post fee disclosure world.

I reiterated that even though plan providers got their fee disclosures out, now maybe an opportunity to review their fee disclosures for clarity and conciseness. The reason being that the Department of Labor is considering an additional guide of fee disclosures that plan providers may have to prepare, what I call "the guide to the guide of fee disclosures". In addition to maintain a competitive advantage, a more concise and clear disclosures of fees can help with your clients because I am convinced that confusing disclosures or too many pages of disclosures will create confusions and confused clients, often become former clients.

In addition, there needs to be further communications from plan providers to their clients on what they actually do. My wife jokingly tells people that she still doesn't know what I do for a living. At least, I think that's a joke. Too often plan sponsors don't understand what their plan providers do, so fee disclosures may make unwise plan provider changes based on price and not understanding that the savings in costs may also be accompanies by a decrease in quality and breadth of services. Plan providers needs to stress their value to their clients because when we talk about the fiduciary responsibility of only paying reasonable expenses, many plan sponsors forget the second half of the question "for the services provided."  Plan sponsors can pay more to get more and if they don't understand that they get more in services, they maybe at a severe disadvantage if they make a change just on cost.

Once again, I am available for speaking engagements, far and wide including Bar Mitzvahs and First Communions (as long as those events are heavily attended by plan sponsors or plan professionals).

Sorry, Lois or how Plan Providers could better market their practice.

Tips on how to stand out among the crowd.

I think the most important thing for any plan provider to survive and thrive in this business now after fee disclosure is about how to stand out among the crowd. What is your message? What is your value proposition?

I always talk about my frustrating experience at a certain semi-prestigious Long Island law firm (sorry, Lois). I do it partly to rub my success in their noses because they never had faith in me, but mostly because the way I market myself now is the way I wanted to market myself back there. I could have been a star there, I could have been a contender, I could have been somebody, instead of the bum I became.

When I was there, I wanted to use Twitter, I wanted to use Facebook, and I wanted to constantly post articles and blog messages. The bureaucracy of the law firm wouldn't allow it. Social media was accused of the advertising committee of one of being barred by the legal advertising rules and I had a six-month wait on the publication of my articles because 3 partners had to approve my article before publication and the marketing department was bogged down in producing articles written by the law firm administrator that served no purpose other than his own.  Since I'm constantly made comments about this abuse of resources, this law firm administrator's article output has been whittled to nothing.

My message was to offer an ERISA practice that would be available for the small to medium sized plans that thought they couldn't afford an ERISA attorney with fees on par with what the legal department at a TPA would charge, with the added benefit of an attorney-client relationship.  My articles were going to try to help plan providers recruit and maintain clients, which would open a dialogue with these providers with the hopes I'd get clients through referrals by these providers. Since plan sponsors and plan providers were wary of the never ending possibility of being billed to death by the billable hour, I was going to charge a flat fee.

One of the ideas I had was that I was going to make a run at the clients of the old TPA I worked at. When I left that TPA, I was replaced by two attorneys and a paralegal (perhaps why a few TPAs have outsourced their legal department to my practice, cost effective is my middle name). So when my old TPA was charging $600 for the Section 415 amendment back in 2010, I was going to charge $300. Only problem is that the advertising committee wouldn't let me say $300. For some reason, I had to say I'd do it in a cost effective manner. After contacting 750 of my old clients, I think I got 1 through this approach. 5 years later, I still think what would have happened had I been able to use $300 in the solicitation letter.

So enough of my life story, I'll save it for the book. As any plan provider you need to find a message as to why anyone would hire you. Saying you're cheaper or how the other provider isn't going to cut it. If you are a financial advisor, the message is about offering a value, how your services will help a plan sponsor's retirement plan, minimize their liability, and improve the retirement outlook of the plan's participants. If you are a TPA, it's how you facilitate the plan's administration, eliminate the potential pitfalls of plan sponsor's fiduciary liability, and plan design that can help a plan sponsor maximize contributions to certain employees while making the required minimum contributions to the rank and file.

Like ERISA attorneys, plan providers are a dime a dozen. You need to stand out among the crowd and it's all about identifying a message that can help explain your services to potential clients and why you should be hired among the crowd. Hopefully, you'll have better luck in getting your message out that I did those years ago at that law firm.