This was the subject of quite a lengthy debate in the 401(k) group on LinkedIn last week. By the end of the day on Friday, there were more than 40 comments. While the discussion took a few twists and turns, the primary debate was whether it is ever appropriate for a plan to pay a higher fee for a service if there is a lower-cost option available.
This post is not about answering that question but rather what I perceived to be an apparent lack of appreciation for the complexity of all aspects of the qualified plan world and a sense that certain disciplines within the business have the market cornered on expertise worthy of a higher fee while others are simply commodities.
Thanks to the government, all who work with qualified plans are subject to laws and regulations that fill countless reams of paper. PPA alone is more than 1,000 pages long and includes something for everyone – actuaries and investment advisors, record-keepers and consultants, attorneys and accountants (apologies if I missed anyone).
There are players within each of these subsets who dabble and those who are experts. Some are reactive and some proactive. There are those who shuffle data and those who ask questions. In short, there are vendors and there are trusted advisors.
Even among the trusted advisors, not all are created equal. One wouldn’t expect all doctors to have the specialized knowledge to perform brain surgery, so why expect all attorneys to understand Title I of ERISA? The same can be said of the other disciplines – not all investment advisors understand fiduciary responsibility or prohibited transactions; not all CPAs know how to audit 401(k) plans; and not all TPAs know the rules thoroughly enough to do anything more than hope the software gets it right.
Those of us who have chosen to make a career of working with retirement plans owe it to ourselves and our clients to recognize the importance of working with other professionals who not only know what they are doing but also have the “client service gene” that allows them to apply the knowledge in a way that is meaningful and practical. That expertise might not come cheap, but it’s much less costly than paying $1,100 per day when a Form 5500 is rejected due to a deficient audit or tens of thousands of dollars in professional fees, make-up contributions and penalties when a low-cost record-keeper uses the wrong definition of compensation to calculate a match because they don’t know how to read a plan document.
Not to mention, if we seek to work with only trusted advisors, we are much less likely to have a vendor suggest to one of our clients that a cheaper alternative is better.