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 Industry
Insight from Fred Barstein
Selecting Provider Partners
Selecting the right 401(k) record keeper partner is one of
the most important decisions that an advisor can make, yet
few undertake a thorough ongoing due diligence process.
Many times, just like plan sponsors, advisors select
partners based on who they know and how much they like their
local wholesaler and then never switch, even if they really
should. This article explores some of the criteria
many successful advisors use to evaluate their record keeper
partners.
First the record keeper must do the
basics well; they do not have to be top rated but they
cannot have infrastructural issues which will haunt the
advisor with constant client problems wasting valuable time
and causing frustration. These basics include:
- Breadth and quality of
investments,
- Record
keeping and technology,
- Plan design
and administration, and
- Participant
support such as enrollment and education.
Beyond the basics, people matter the
most, especially the local wholesaler. According to
the 2007 DCP Advisor Study, the key drivers of overall
satisfaction include the wholesaler’s availability and
accessibility, product knowledge, turnover and responding
quickly to calls. Other people factors include the
relationship managers, making it easy to do business with
the provider and fast turnaround on requests. The
remaining key drivers include investments, pricing and
competitive advantages.
Advisors generally have three to four
key partners with whom they do most of their business.
As a practical matter, advisors need to have these key
relationships to get the special treatment they need if they
expect to build and manage a large book of business, just as
frequent business flyers stick to just a few airlines.
Most advisors have three to five second-tier record-keeping
partners who offer unique services or who the advisor is
evaluating to determine if they should be moved into their
top tier. Keeping tabs on all major providers is
important with the prevalence of broker of record change and
for competitive situations. Finally, advisors are well
served to have a key relationship with one or two local TPAs
that either perform their own record keeping, offering a
wide array of investments, or who focus on plan design
partnering with record keepers like John Hancock.
So when selecting your partners, or
evaluating them, we suggest you use this checklist or
scoring method:
- Market Focus by Plan Size
- Advisor Support Models
- Plan Design and Service Models
- Investments
- Compensation
- Business Model
- Wholesaler Quality and Coverage
- Commitment to Market
- Participant Support
- Rollover Support
Because so few do it, record keepers
that support advisors’ prospecting and benchmarking (short
for closing) efforts, will distinguish themselves and will
be rewarded with more business, assuming they have
successfully run through the other gauntlets.
Not many advisors actually rate their
providers on the criteria enumerated in this article or
using a thorough, well thought out process. How can we
advise sponsors to evaluate funds and record-keeping
services if we don’t do the same thing by periodically
reviewing our current top tier partners putting them through
a rigorous due diligence process?
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