A peek behind a recordkeeper’s curtain…

A peek behind a recordkeeper's curtain...

The last few years have taught the retirement industry a tremendous amount. We’ve “deconstructed” our offerings twice—once for fee disclosure and once for the Fiduciary Rule. Through that process, we’ve uncovered a few simple but significant learnings.

There is a big difference between a 401(k) “product” and a 401(k) “service.” 

Oddly enough, as an industry, we still don’t speak consistently about those differences.

As a full service provider, PAi offers fully bundled retirement services including recordkeeping and administration. As a retirement service provider, we base our success on advisors and their customers rather than on a proprietary investment product.

401(k) products have the lion’s share of the marketplace today. As an example—during the Fiduciary Rule preparation discussions we were asked how we pay commissions and if we could “levelize” commissions. As an independent recordkeeper, we don’t pay commissions. Commissions are paid by the funds put into our customer plans by our customers or the investment fiduciary they hire. Home offices were talking to us like every other vendor of theirs who offered a product, not a service. Once we got past that difference, it was time for action and a couple things became very clear.

Linking fiduciary investment decisions to non-fiduciary recordkeeping services feels simple and like a good idea—until it becomes clear that it’s not. Then the decision makers, plan sponsor, and participants feel trapped. Often times, so does the provider. When the plan investments are governed by a product and not part of a service, you’re left with poor choices when services need to change—and they always change. For example, the SEC is now looking to take up “fiduciary” regulations.  Best-in-class investment service and best in class recordkeeping services lose that status when they are tied together in a product. Prudent and defensible are not synonymous. In today’s fast-paced world, sooner than later, either the investments or the recordkeeping become the baby and the other becomes the bathwater. Either way, the outcome isn’t good.

For the fiduciary work that was requested by the home offices, it was much easier to get a 401(k) “service” vs. a 401(k) “product” aligned with the broker dealer’s desired outcomes. Our service wasn’t a one-size-fits-all approach like many products. We allowed for options and the opportunity for customization. We were free to allow our customers to make the choices needed to align their plans with home office fiduciary strategy. Flip from commissions to fees?  Flip to levelized comp? Provide us the strategy and we facilitate the client move. It was also faster for the client. On average, it took our customers about ten minutes to eSign the documents necessary to convert their service to align with their broker dealer’s strategy.

At the request of our broker dealer home offices, we flipped hundreds of plans for many home offices to third party investment managers. Through all of that activity, I never heard of a single instance where an advisor got fired for not choosing the funds.

I did, however, hear of advisors getting fired because of the lack of a relationship….

The value of the advisor to a plan wasn’t in the fund conversations.  It was in the relationship. A retirement service provided a way for advisors to sustain business and plan sponsors consistently chose the “Do It For Me” solution by hiring someone else. The value of the advisor remained in the relationship, the communication, and the confidence.

CoPilot was designed to enhance that very relationship. By utilizing the extensive research capabilities of large institutional investment managers to do the ‘heads down” work with the fund options, the advisor is free to do the “heads up” work with their clients—and the clients they will serve tomorrow. 

If you’re looking for the freedom and security of a retirement service rather than a retirement product, check out CoPilot – designed to grow your practice and your customers.  To offer your clients the CoPilot retirement savings experience or to learn more, give us a call today: 800.236.7400.

Michael Kiley, Founder and CEO