IN CASE YOU have not noticed, TPAs are becoming more and more popular in the under $10 million market with no end in sight.  Whether it’s TPAs who “hang” off of a large recordkeeper’s system or TPAs who perform the recordkeeping themselves, look for TPAs to gain even more market share in the upcoming years as all the trends are in their favor.

There are three basic service models:

1. Bundled – one company performs recordkeeping and administrative services and makes the investment available typical of Fidelity plans;
2. Unbundled – the recordkeeper controls the investment line-up and partners with local TPAs; and
3. Open TPA – a local or regional TPA performs all three services.

TPAs who perform their own recordkeeping enjoy a 33% market share for plans under $10 million; this share does not include TPAs who work with unbundled providers like Hancock and Nationwide.  With recordkeeping software vendors like ExpertPlan, BenefitStreet, Schwab, and SunGuard (using Relius) growing, TPAs have access to better recordkeeping systems at a better price.  Unbundled providers are growing faster than their bundled competitors, and traditional bundled providers, such as Principal, Great West and Transamerica, have reached out to TPAs.  Providers that work in both worlds, like Hartford, American Funds, MFS, and ING, are experiencing greater traction with TPAs.  Even ADP, with the acquisition of the old Kemper plans, and Paychex have noticed this market.

Whether unbundled or open, TPAs offer the flexibility that bundled providers cannot match.  TPAs work with the owners and highly compensated employees to maximize savings.  Most of these people are seasoned professionals with deep ties to the local business communities.  With open TPAs, pricing is more competitive, investment choice is nearly unlimited, and fee transparency is simple.  In fact, RIAs in the smaller market have little choice but to work with open TPAs as the larger providers cannot pay them.  Big companies, such as Fidelity (through their brokerage division which partnered with SunGuard), Schwab, and TD Ameritrade (with heir acquisition of Fiserv), are supporting open TPAs; Matrix, a newer entrant, is growing rapidly.

On the other hand, with bundled providers, advisors know (in most cases) they will not be competing on a case and that, if there is a problem, there is one throat to choke.  While some TPAs are excellent, there is no national uniform rating system, and broker dealers as well as local advisors have a hard time determining who is good and who is not.  Open TPAs cannot begin to compete with the technology or home office support of larger providers who live and die based on the quality of their wholesalers.

 Return to Newsletter