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With plan sponsors 'running blind' on 401k plans, an RIA jumps from $12 billion to $32 billion of AUA and adds a former J.P. Morgan chief

Lockton Retirement Services locks in on 'small' businesses that have no DOL-assuaging fiduciary overseeing DC assets before they walk through the door

Author Lisa Shidler July 2, 2014 at 5:50 PM
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Tim Clark: Half of my new business has been from engaging firms that didn't previously have an advisor -- they literally had nothing.

401(k) Stories

Teresa Vollenweider

Teresa Vollenweider

July 2, 2014 — 11:59 PM

Unfortunately so-called financial advisors/pseudo financial advisors also place blinders on small business owners/plan sponsors. It is to the advantage of the revenue-sharing TPA (guy getting kickbacks) and the so-called financial advisors/pseudo financial advisors to keep the plan sponsor uninformed and uneducated, i.e., in the dark, so that the conflict of interest ridden TPA and conflict of interest ridden so-called financial advisors/pseudo financial advisors can siphon fees off of small businesses’ 401k plans. It is my opinion that those selling the plans have an obligation to thoroughly explain how this 401k thing works and all the conflicts of interest there are, and I don’t mean that they should be able to get by with burying this in some contract/agreement. I mean actually sitting down with the small business owner and thoroughly explaining it, and then before completing the “sale” of the plan checking to make certain that the small business owner thoroughly comprehends what the 401k thing is and how it works. Don’t assume anything. We’re talking about people’s lifelong, hard-earned savings here. If the seller of the 401k does not think that the small business owner has the time or the ability to administer the 401k, then do the right thing and don’t sell it to him/her. Or, do the right thing and refer him/her to at least three really, truly fiduciaries (not pretend fiduciaries or fiduciaries in name/title only) to interview and investigate before you sell him/her the 401k plan.

Kate McBride, if you read this, would you let me know if I am on the right track. This 401k stuff is very, very confusing and is riddled with conflicts of interest. It is my feeling that the first bad apple is often the TPA that sells the plan to the small business owner. He is selling it with dollar signs in his eyes and could give a rat’s ass whether or not it is the right thing for the small business owner.

Fiduciary Advisor Advocate

Fiduciary Advisor Advocate

July 3, 2014 — 2:14 PM

To Teresa I agree with you. After almost 30 years in this industry it absolutely amazes me the extent of the misalignment of service provider interests with the interest of their client. Service providers do not and are not compensated for providing any form of advice…they are compensated for placing product. There are reasons for that- one being that providing advice opens the door for added liability and service providers don’t want that. So- they bury all the disclosures in mountains of documents and leave it up to the sponsor to figure it all out. The sponsor assumes the fiduciary obligation, responsibility and potential liability…it’s the same regardless of whether the plan is $5M or $5B. That’s a real problem and smaller asset pools are at a real disadvantage- but assume the same liability- because, in most cases, smaller pools don’t have the internal resources or time to sift through all the machinations.

It seems the only 'defense against the service providers’ is to enlist an independent consulting firm to help you through the process. But- the plan sponsor has to pay for that- not the participants.

I struggle quite a bit with this article because this article seems to be about the advisor, how the advisor wins, how the advisor builds their book of business, slick marketing techniques, personal sagas. What about the beneficiary? How are we helping them? What about the plan sponsor? How are we helping them?

One final and more specific thought on the group cited here- I hope they are not accepting commissions for advice because that could certainly open a number of potential conflicts for the sponsor and others.

Teresa Vollenweider

Teresa Vollenweider

July 3, 2014 — 4:28 PM

Why does the company that “sells” the 401k plan to the small business owner, before he/she “sells” the 401k plan to the small business owner, provide three names of real fiduciaries that the small business owner could interview? I find it hard to believe that the 401k vendor doesn’t know about all these problems, and he/she is in the best position to nip the problems in the bud by referring the small business owner to a real fiduciary. Most small business owners probably don’t even know that real fiduciary consultants even exist or that they need one to navigate this conflict ridden maze. Hell, small business owners are lucky to know that they’re supposed to be fiduciaries. That’s one of the things that I think that the 401k sales person should explain to the small business owner *before” he/she “sells” the 401k plan to the small business owner. Is the person “selling” the 401k plan purposefully trying to hide information from the small business owner? That’s certainly what appears to be happening. If that is true, why is the person “selling” the 401k plan hiding this information? What is his/her motive? To me, informing the small business owner is just the right thing to do. Why is the 401k vendor not doing the right thing?

July 3, 2014 — 11:44 PM
Do you even read the article?

Do you even read the article?

July 16, 2014 — 1:27 PM

The 401k plans that they are referring to here have millions of dollars in assets already. I am not sure why you keep talking about small business owners in your comments, when this company is clearly not targeting small businesses. They are focusing on companies that have established 401k plans, but are not working with an advisor to assist their employees with respect to investment choices within the 401k. I understand what you are saying about a typical small business owner getting taken advantage of with a 401k plan that they might not necessarily need, but that is not the topic of this article whatsoever.

Teresa Vollenweider

Teresa Vollenweider

August 14, 2014 — 8:45 PM

Yes, I read the article. You don’t equate small businesses with millions of dollars? You don’t equate small businesses with established 401k plans? Mike Alfred states, “For some of these firms that get larger clients, sometimes the assets grow but the actual profits haven’t grown as substantial. Sometimes, revenue goes down when you get larger clients. A lot of people think it’s sexy to do large plans, but the reality is advisors don’t make a ton percentage-wise.” It sounds as though he is saying that the money to be made is not in the large clients; it’s in the small clients. Would you not agree? Anyone can inform the small business owner at any point in time—before the 401k plan is sold or after the 401k plan is sold or 5 years into having the 401k plan, but it’s as though there is a concerted effort being made to keep the small business owner in the dark, and I’m guessing that that is being done because doing so allows for more “vigging.” Am I correct?

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