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AdvisorNews - December 2016

Improving your business by partnering with a TPA

Judy Ward | Illustration by Dadu Shin.


  • TPAs can provide expertise and support related to plan design, compliance and operational issues.
  • Many TPAs can help execute customized plan design such as new-comparability or age-weighted designs, especially at the small end of the market, which many recordkeepers or advisers cannot do.
  • The TPA’s support enables advisers to act as a general contractor, providing guidance about investments, fiduciary best practices, general plan design and participant education and advice.


When retirement plan advisers work with third-party administrators (TPAs), they need to delineate each party’s—including the recordkeeper’s—respective roles. Asked how she has seen plan advisers make mistakes working with TPAs such as her own company, Trina Gross says they sometimes neglect to act as a partner. “If [advisers] let us provide our strength, and they provide their strength, it works beautifully,” says Gross, CEO of Acuff & Associates, in Brentwood, Tennessee. “If they try to do our role, they don’t have the same level of expertise on plan design and compliance issues as we do, just as we don’t have that expertise on investments. By leveraging us, they can bring more to their book of business.”

Russell Hooker, executive vice president at TPA firm Nova 401(k) Associates Inc. in Houston, thinks of a good plan adviser as acting like a general contractor, playing an overall leadership role but delegating work as needed to skilled experts on the team. “A good leader is not afraid to lean on other team members, based on their expertise,” he says. “I don’t think plan sponsors believe that one person is supposed to know everything about everything. And I am not an adviser, so I’m not a threat to take that business from the adviser. Whoever you are partnering with, your interests have to be aligned. All the partners have to be able to dance together.”

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Third-party administrators have expertise in compliance and operations issues, and perhaps offer the most value for sponsors with complex retirement plans. “What really drives the TPA service is plan design,” says Steven Fraidstern, vice president at Associated Financial Consultants Inc. in Fort Lauderdale, Florida; his firm does both advisory and TPA work. “You are designing a benefit that can [aid] both the employees of a company and its owners,” he says. “We work on lots of new-comparability plans, and some cash balance plans and defined benefit [DB] plans.” The firm’s plan clients typically have $5 million or less in assets.

“Our ‘sweet spot’ is clients looking for a customized plan design,” says Norman Levinrad, president and chief actuary at Summit Benefit & Actuarial Services Inc., a TPA in Eugene, Oregon. “Rather than just having an ‘off-the-shelf’ plan, we design the plan for sponsors.”

Some large recordkeepers accommodate mostly standard types of plan designs, says adviser Andrew Denny, a partner and retirement plan division leader at Shepherd Financial in Carmel, Indiana. However, some sponsor clients want a more complex design and need the nuts-and-bolts setup to accommodate it. “Definitely, TPAs, from a plan document perspective, have more flexibility,” he says. “Certain recordkeepers have a very specific way of doing things.” For example, he says, some recordkeeping platforms have inflexible rules on how to define hours of service included in match calculations, or what automatic enrollment provisions and designs can be supported.

TPAs have several different kinds of business models, and advisers should understand what kind of relationship they want when looking for a partner. “Some TPAs also serve as an adviser, and some serve as both an adviser and a recordkeeper,” Levinrad says. “There are TPAs that provide their own open-architecture platform. We wrap our TPA service around recordkeeping platforms, for clients that are looking to do an unbundled approach. We focus on doing plan design, compliance testing, and distribution and loan processing.”

When a plan has both a TPA and an adviser, a separate recordkeeper has a limited role as more of a pure vendor. “[It serves as] the custodian of assets: That’s where the money goes, and the recordkeeper actually invests the money, as directed,” TPA Hooker says. “The recordkeeper also handles all the pretty things that participants see: the 1-800 number, the website, the participant statements. Some recordkeepers also [manage] loan distribution and processing, and others push it to TPAs.” In these scenarios, a recordkeeper may have little direct contact with plan sponsors.

Who serves as the primary contact for clients varies, depending on the adviser and TPA involved. It works best for a TPA to serve as a sponsor’s main contact on operational and compliance issues, in Hooker’s experience. “We are focused on day-to-day operations of plans, and so 90% of what comes up with sponsors is TPA-oriented,” he says. “For an adviser to be the point person on operational issues only slows down the process.”

Acuff & Associates prefers to be the main contact for sponsors overall, TPA Gross says. “Sponsors see us as the liaison with the recordkeeper and with the adviser,” she says. Some advisers want to take that lead role with a sponsor, she says, “but eight out of 10 advisers are very happy for us to be the main contact for the sponsor. Advisers focus on the investment piece and on engaging participants at a level that will make them retirement ready.”

Advisory firm Associated Benefit Consultants, in Rye Brook, New York, on the other hand, likes to take that lead role, says Anthony Domino Jr., managing principal. If a sponsor client has a TPA focusing on plan design and compliance, his firm focuses on areas such as providing 3(21) fiduciary investment advice and plan-enrollment services, as well as integrating the work of the plan’s providers to simplify the process for the sponsor.

“We are the front-facing manager of the sponsor relationship,” Domino says. “I am taking the information that the TPA is providing in the background, and taking the details the recordkeeper is providing, then tying the two of them together and communicating that to the plan sponsor in one fell swoop.” Not all advisory firms do it that way, depending on their service model, Domino says. “Other advisers may rely on the recordkeeper and the TPA to be front-facing with the sponsor,” he says. “We have a very high-touch process. We don’t have a huge number of clients: We go deep and narrow with them.”

Making it Work

Sources offer these tips for working well with a TPA:

  • Know where you need the TPA’s expertise. Shepherd Financial has the in-house expertise to answer many technical questions sponsors have about plan design and compliance, Denny says. “Many advisers have to lean really hard on the TPA, to cross the t’s and dot the i’s, where we are really the quarterback of the client’s work with a TPA,” he says. “But most advisers don’t have the expertise to understand the ramifications of certain plan designs, or the ins and outs of compliance.”

For instance, a sponsor may want to change the type of safe harbor plan and profit-sharing design to one that maximizes the benefit for key employees. Shepherd Financial takes the lead role in working with the sponsor, while a TPA may do calculations behind the scenes to support that work. “In many situations, an adviser can’t get that far,” Denny says. “It depends on the depth of expertise of the adviser, and its capabilities.”

  • Clearly define the adviser and TPA roles with a sponsor. “The adviser is the sponsor’s point of contact for the investments and issues with the recordkeeper,” Levinrad says. The TPA should serve as the sponsor’s main contact for administration, compliance, testing, and reporting issues, he says. Clients typically see no problem with having two main contacts for different concerns, he says.

    Advisers and TPAs need to be willing to defer to each other if a sponsor has questions that fall into the other’s main areas of expertise, Levinrad says. “Sometimes that means an adviser saying, ‘This is a question for the TPA,’ or for us to say, ‘This is a question for the adviser.

    How much contact TPA Pinnacle Plan Design LLC has with sponsor clients depends somewhat on the adviser, says Lynn Young, a Phoenix, Arizona-based consulting actuary. Regarding technical, day-to-day plan administration matters that arise, she says, “We like to have the contact with the plan sponsor, and keep the adviser in the loop.” If Pinnacle has to talk with an adviser who then has to relay the information discussed to the sponsor, rules and regulations could be misunderstood, she points out.

    • Keep the TPA informed. “As in every partnership, it’s a matter of good communication,” Levinrad says.

For instance, Nova 401(k) Associates typically takes the lead on plan-design changes with a sponsor, but sometimes an adviser assumes that role, Hooker says. “More times than we would like, [the desire for changes] comes up in a committee meeting with an adviser, and the adviser doesn’t incorporate the TPA into the discussion,” he says. Then, when the adviser informs Nova of the design-change talks, the TPA will have to go back and fix errors made in the planning because of inadequate technical knowledge of rules and regulations. “You can never loop the TPA in early enough,” he says.

TPA Services Available to Financial Advisers and/or Retirement Plan Sponsors

Allocation of employer contributions and forfeitures 98%

Calculation of participant vesting percentages 98%

Preparation of loan paperwork for plan participants and trustee execution 97%

IRS non-discrimination requirement testing/contribution limits 97%

Assistance in processing all types of distributions from the plan195%

Design/Amendment of defined contribution plan documents 94%

Plan audit support 93%

Help with recordkeeper transitions 80%

Preparation of employer and employee benefit statements 80%

Actuarial calculations and support 67%

Form 5500 signing263%

Fiduciaryeducation 45%

Planbenchmarking 43%

Help with Investment committee meetings 27%

Annual CSP3 408(b)(2) assessment of fee reasonableness 24%

Investment monitoring services 22%

Investment selection services 19%

Target-date evaluation tools 18%

177% offer small-distribution rollover processing.
297% have Form 5500 preparation.
3Covered service provider.

Producing TPA or Nonproducing TPA

Producing TPAs serve as both the third-party administrator for the plan and the plan's investment adviser. Nonproducing TPAs sell no investment products, focus only on compliance issues and perform none of the functions that a financial adviser would usually perform.







September 6, 2016


Complying with the Best Interest Contract Exemption (“BICE”) requires a mountain of paperwork that commits, promises, and makes disclosures. Developing this paperwork is an enormous challenge but standing by the commitments, promises and maintaining accurate disclosures present an even greater burden for Financial Institutions and Advisers.

The structure of contractual commitments, promises and disclosures was designed to make it easy for plaintiffs to win cases against Financial Institutions and Advisers. With an enforceable contract in place there is no longer a need to show malicious intent or a violation of complex laws. Any client can win a case in virtually any court if the contract terms are violated.

Contract terms are easily violated without an infrastructure to enable and to demonstrate compliance. Take for example the central commitment to act in the client’s best interest. To win a BICE lawsuit claiming the client’s best interests were breached, the Financial Institution or Adviser must be able to show that a recommendation (which may have lost money) was in the client’s best interest at the time it was made!


Obtaining liability insurance coverage under these circumstances is becoming increasingly difficult.

This paper summarizes the activities necessary to support the commitments, promises and disclosures required for those who choose to enter into a best interest contract.




Savvy advisers will accept fiduciary status



  • October 21 2016, 11:40am EDT

You can’t put the genie back in the bottle, but brokers and non-fiduciary advisers are trying to do so in their challenges to the new fiduciary rule.

As has been widely reported, there are several pending court challenges to the Department of Labor’s new guidance in a last-ditch effort to avoid compliance. You might think that the financial services industry would find it uncomfortable to be seeking to enjoin a rule requiring them to put their clients’ interest before their own (it is, after all, the client’s money), but apparently not.

See also: Seeking clarity in the DOL’s new fiduciary rule


These lawsuits have created some unfortunate confusion about the vulnerability of the final rule. While it is never possible to predict with certainty what particular courts will do, here are some reasons the fiduciary rule should be upheld and the pending challenges dismissed:

The lawsuits claim that the regulations were not subject to sufficient public comment, but there isn’t another set of regulations issued in recent memory that was subject to so many hearings and got so many public comments. The Department of Labor clearly took those comments into account, as is evident from a comparison of the different versions of the regulations.

The lawsuits claim that the Department of Labor has no authority to define “investment advice,” but the agency clearly has authority to interpret Section 3(21) of ERISA in the same way that the Internal Revenue Service issues regulations and rulings interpreting sections of the Internal Revenue Code. And Reorganization Plan No. 4 transferred to the Department of Labor the authority to define prohibited transactions involving individual retirement accounts, though this wasn’t statutory.

Brokers claim that if the regulations become effective, many will leave the market and smaller accounts will no longer have access to investment advice. In fact, they convinced some small plan sponsors to testify and comment that the new rules would require them to pay more for advice or forego advice completely. But is this correct, and can they really claim any damages? Leaving aside the question of whether conflicted advice is better than no advice, as an amicus brief in the Texas suit points out, there are many advisers who are already subject to the fiduciary standard, and they are doing just fine. In the U.K., similar predictions of an exodus from the market were made when commissions were prohibited across-the-board, and some brokers did leave the market, but strengthening protections for investors did not cause brokers to abandon it. Life and the investment business went on. Retirement accounts potentially represent trillions of dollars in business. It will not be easy to walk away from that.

A key point sometimes lost in these discussions is that in some ways, the genie is already out of the bottle. The battle over these regulations has focused public attention on the fact that non-fiduciary advisers are permitted to put their own interests first, something that many relatively unsophisticated plan sponsors and IRA holders had not understood. Some undoubtedly still don’t understand this, but the New York Times, the Wall Street Journal and USA Today, among others, have been writing about this issue for some time, and this uninformed group is getting smaller.


Smart plan fiduciaries already insist that their advisers acknowledge fiduciary status, and their ranks are growing. A just-issued survey by Fidelity Investments found that 69% of plan sponsors -- a new high --now rank an adviser’s willingness to assume fiduciary responsibility as important.

A movement toward level fees and more transparency began before the final rule was issued as a result of new disclosure requirements for service provider compensation and the many lawsuits filed challenging 401(k) plan investments and fees. These developments also led prudent plan fiduciaries to conclude that the stakes were too high to make decisions without input from professionals who will assume co-fiduciary responsibility.

Even if pension professionals and court watchers are surprised and the challengers prevail in overturning the regulations, there is no going back to the investment landscape as it existed before. Savvy non-fiduciary advisers and brokers will adjust their practices and move forward.



What advisors want from retirement plan record-keepers

Inside the minds of the 401(k) gatekeepers via Cogent Reports

Nov 29, 2016 | By Nick Thornton

Earning the consideration of advisors remains a key challenge for record-keepers, Cogent's research shows. (Photo: Getty)

At the end of the second quarter of 2016, total assets in defined contribution plans hit $7 trillion, according to research from the Investment Company Institute and BrightScope.

That marked a new high for defined contribution plans, which are closing in on the assets held in IRAs, which was $7.5 trillion, the largest share of the $24.5 trillion total retirement market. And as trillions of dollars can be expected to roll over from defined contribution plans to IRAs in the coming decade, assets in defined contribution plans can be expected to eclipse the total value in IRAs in the foreseeable future.

Whose job is it to get 401(k) participants ready for retirement?

As pensions disappear and 401(k) plans proliferate, do plan sponsors feel more responsible for helping employees get ready for retirement?...

Within the defined contribution plan segment, 401(k) plans hold nearly $4.9 trillion. For the record-keepers looking to grow within that segment, the market is competitive, arguably crowded, and largely dependent on advisors who specialize in servicing 401(k) plans, according to new research from Cogent Reports, a division of the consultancy Market Strategies International.

“If advisors are not recommending your platform it’s clearly going to be difficult for 401(k) service providers looking to grow,” said Sonia Sharigian, senior product manager and the author of Cogent’s new "Retirement Plan Advisor Trends" report.

Cogent’s new data shows that on average, plan advisor specialists only recommend 2.2 plan providers to prospective clients. The report analyzes advisors’ brand loyalty to 34 record-keepers.

Perhaps more poignant: The report shows that nearly 40 percent of defined contribution advisors only recommend one record-keeper, a number that is up from 32 percent in 2015.

“When you stop and think about it, those are pretty sobering numbers for record-keepers,” said Sharigian, in an interview with BenefitsPro. “It shows just how tough it is for record-keepers to get consideration from the advisor specialists they need to grow their business.”

Cogent surveyed 508 plan advisors with varying levels of defined contribution business. So-called emerging advisors are managing less than $10 million in total defined contribution assets, while established advisors, which represent the bulk of the survey pool, advise on more than $10 million in assets.

Factors advisors keep in mind

Cogent also breaks out the sentiment of large-plan specialists managing over $50 million. For that group, advisors are recommending the most record-keeping platforms, at an average of 3.6. By contrast, the average emerging advisor is recommending 1.8 record-keepers.

Since 2012, advisors’ loyalty to preferred record-keepers has not changed much — five years ago advisors recommended an average of 2.3 record-keepers.

That consistency is telling, says Sharigian, who has been with Cogent for six years.

While earning the consideration of advisors remains a key challenge for record-keepers, the data also suggests that once relationships have been forged within specialty advisor channels, record-keepers are benefiting from ongoing relationships.

“Record-keepers have to nurture those relationships, just as any brand does with any consumer base,” said Sharigian.

In order to diagnose advisors’ thinking, the report breaks down the key attributes that drive advisors’ consideration of record-keepers.

The top consideration is the value record-keepers deliver relative to the price of their services.

“The best plan advisors are thinking of the best interests of plan participants,” said Sharigian. “There are a variety of levers record-keepers can use to engage advisors, but clearly, total value — which could mean anything from total fees, the level of support delivered to participants, and how the brand ultimately serves participants’ interests — is front of mind for advisors.”

Other top considerations for advisors are the ease they have in doing business with a record-keeper, the overall level of support given to advisors, strong fiduciary support practices, which Sharigian says can be expected to grow in importance in light of the U.S. Department of Labor’s fiduciary rule, and the overall reliability of a record-keeper.

This year’s report introduced the question of the value advisors place on record-keepers’ financial wellness programs, which for the time being, ranks lower on the list of advisor consideration, but can be expected to quickly grow in importance in coming years, says Sharigian. “The bottom line is that all of these services and support levels go a long way to breeding advisor loyalty to the platforms they recommend.”

This year’s report ranks the top five record-keepers advisors say are the easiest to do business with: American Funds, Fidelity Investments, John Hancock Financial Services, Vanguard, and Principal Financial Group held the top five spots (in the order they appear in the list).

And among the 34 record-keepers assessed in the survey, five emerged as offering the best value for the money: Vanguard, American Funds, Fidelity Investments, ADP Retirement Services, and John Hancock Financial Services.



Mutual Fund Share Class Evaluation: A Focus on "Net" Costs

by Ray McGrath, MBA | 12 December 2016

Increasingly, retirement plan sponsors are looking to attain the lowest share class available for participants; however, in some cases, that decision requires careful analysis. Below, we explore the expense ratios associated with mutual funds that offer multiple share classes.

An expense ratio is defined as the total percentage of fund assets used for administration and investment management of a portfolio.  Mutual fund companies offer multiple share classes, each with a different expense ratio.  While the investment process is the same for all share classes of a particular fund, there may be different amounts of revenue sharing included in the total cost.  Revenue sharing is typically used to help plan sponsors offset the cost of managing and administering the retirement plan on behalf of participants.  While the most common type of revenue sharing is the 12b-1 fee, there are other types of fees as well, such as Sub-Transfer Agent fees, Shareholder Servicing fees and/or Finder’s Fees.

Including the fund with the lowest expense ratio (i.e., R6 or I share) has been the recent trend for plan sponsors.  Typically, these share classes do not contain any revenue sharing in their expense ratio.  As a result, the plan expenses may need to be paid by the plan sponsor or directly by plan participants. Therefore, many plan sponsors are re-examining revenue sharing and exploring new methods to pay for the administration of their retirement plans.

This decision should be simple, considering the net cost should be the cost of management and administration of the mutual fund portfolio; however, this is not always the case.  The lowest expense ratio share class may only be available with investment restrictions, which are typically asset-based (i.e., a minimum initial investment) or at a potentially higher net cost (i.e., overall expense ratio minus the revenue share expense) than other share classes.  

The net cost is an important consideration when comparing multiple share classes of the same fund.  In Exhibit 1 below, all of the share classes have identical net costs, but different quoted expense ratios.


  Expense Ratio Revenue Sharing Net Cost  
Large Cap Growth Fund A 0.80% 0.50% 0.30%  
Large Cap Growth Fund I 0.35% 0.05% 0.30%  
Large Cap Growth Fund R6 0.30% 0.00% 0.30%  

This is typically to be expected when comparing share classes.  However, due to costs associated with creating a new share class, legacy revenue sharing agreements between mutual fund companies and recordkeepers, and/or proprietary funds offered by the recordkeeper, the net cost often varies among multiple share classes. Mutual fund companies may also negotiate different revenue sharing agreements with each recordkeeper. Thus, plan sponsors and their consultants must regularly monitor the structure of revenue sharing agreements, expense ratios, and share class differences among the funds offered by the plan’s recordkeeper.

In Exhibit 2, “Large Cap Value A” has a total expense ratio of 0.80 %, with revenue sharing of 0.50%, for a net cost of 0.30%.  In comparison, “Large Cap Value I” has a total expense ratio of 0.30%, with 0.05% revenue sharing, hence the net cost to the plan is 0.25%. Large Cap Value R6 has a low expense ratio of 0.30%, but does not share any revenue.



This is typically to be expected when comparing share classes.  However, due to costs associated with creating a new share class, legacy revenue sharing agreements between mutual fund companies and recordkeepers, and/or proprietary funds offered by the recordkeeper, the net cost often varies among multiple share classes. Mutual fund companies may also negotiate different revenue sharing agreements with each recordkeeper. Thus, plan sponsors and their consultants must regularly monitor the structure of revenue sharing agreements, expense ratios, and share class differences among the funds offered by the plan’s recordkeeper.

In Exhibit 2, “Large Cap Value A” has a total expense ratio of 0.80 %, with revenue sharing of 0.50%, for a net cost of 0.30%.  In comparison, “Large Cap Value I” has a total expense ratio of 0.30%, with 0.05% revenue sharing, hence the net cost to the plan is 0.25%. Large Cap Value R6 has a low expense ratio of 0.30%, but does not share any revenue.


  Expense Ratio Revenue Sharing Net Cost  
Large Cap Growth Fund A 0.80% 0.50% 0.30% (no minimum investment)
Large Cap Growth Fund I 0.30% 0.05% 0.25% ($100M minimum investment)
Large Cap Growth Fund R6 0.30% 0.00% 0.30% (no minimum investment)

Based on this example, the “I” share is actually less expensive, when factoring in 0.05% of revenue sharing to the plan.  Depending on how a plan allocates expenses, “I” shares could have the lowest net cost to the plan as a whole. 

The R6 share class is the latest offering from many mutual fund companies.  Targeted towards the retirement plan market, the R6 funds offer a low-cost, zero-revenue share structure and, most importantly, no minimum investment requirements for retirement plans.   Since the R6 share class is relatively new, it may have a smaller amount of assets under management.  Mutual funds have certain fixed costs and benefit from economies of scale; therefore, the expense ratio of the R6 share may be higher than older share classes that have more assets under management.  Some asset managers have already addressed this issue and the net cost to the plan is the same in all share classes.  It is expected that, over time, as the assets in the fund increase, the expense ratios should decrease.

Key Takeaways

  • The share class with the lowest expense ratio may have a high minimum initial investment to enable economies of scale.
  • Expense ratios change; as assets grow in a share class, expense ratios tend to decline.
  • Recordkeepers may have different revenue sharing rates, as they are independently negotiated with fund managers.
  • Revenue sharing agreements between recordkeepers and fund managers may change or be renegotiated at any time.
  • Share classes, expense ratios, and minimum asset requirements should be reviewed on a regular basis to identify potential savings opportunities.