Study: Advisors’ Fear of Outsourcing Underscores Struggle with Scale

Identifying new opportunities and managing scale were cited by retirement plan advisors as the biggest issues they struggle with in growing their practice, but a new study suggests they are not taking steps to create additional efficiencies.

In “Evaluating Operational Challenges to Drive Scale and Efficiency,” 39% of advisors stated that identifying new opportunities is their biggest hurdle to growing their practice, followed by 33% who see managing scale as their biggest hurdle. Yet, an even smaller percentage are outsourcing their most basic functions, according to the study by digital platform firm Vestwell.

Read More

 

Amid compression in recordkeeper industry, one start-up is banking on its technology to buck the trend

Consolidation of recordkeeper service providers to the defined contribution market may not yet be as torrid as some early predictions, but it’s happening.

The trend is expected to continue among the largest national recordkeepers—a list numbering about 40—and among the scores more of regional providers.

“From a pure recordkeeping standpoint, there is excess capacity,” Alexander D’Amico, a partner in McKinsey’s financial services practice, told BenefitsPRO earlier this year.

Read More

Why BNY Mellon thinks fintechs are friends not foes

As the world’s largest custodian bank and asset servicing company, and one of the oldest banking corporations in the US through its predecessor, many would believe that the Bank of New York Mellon Corporation (BNY Mellon) is a traditional financial services company that has not kept up-to-date with digital and technology advancements and is instead tied to its legacy past.

Read More

Read more about our partnership with BNY Mellon here.

To benefit from outsourcing, advisers need to focus on what is, and isn’t, core to their value

By Ryan W.Neal

Advisers are increasingly outsourcing parts of their business to focus on growth. But a new study from Vestwell, a digital platform that allows advisers to offer and administer retirement plans, suggests many aren’t doing it with a strategic focus on the unique value they provide clients.

When Vestwell asked 420 retirement plan advisers to name the key factor that differentiates their practice from others, 75% named some form of relationship management, such as employee education or holistic wealth management.

Read More

Putting MEPs on the Map

By Benjamin Thomason, Vestwell

As we all know, the Department of Labor recently unveiled a new final rule that will make it easier to form and manage Multiple Employer Plans (MEPs). So it’s no wonder that many advisors in the industry are thinking about the best ways to incorporate them into their business strategies.

For retirement plan advisors, in particular, new MEP rules are changing the game—especially in the small plan market. Thanks to recent regulations, employers that have little or no business-related connection to each other are now able to join a closed MEP, creating an opportunity for advisors to service smaller clients as a 3(38) fiduciary in a way that’s both scalable and cost-effective.

Where should an advisor start? Although advisors cannot sponsor closed MEPs, they can leverage relationships to put the right MEPs in place. Most advisors have spent their careers developing centers of influence. A MEP allows them to turn those relationships into partnerships by working together to create really efficient offerings.

While the MEP would be sponsored by a lead employer that takes on the bulk of the fiduciary responsibility and administrative oversight, advisors and partners can make it easier to craft and manage, while also delivering superior brand and value.

Two relationships, in particular, that bring significant opportunities are employer groups and associations, both of which can act as the “lead employer” of a closed MEP.

Since recent regulation now allows for unrelated employers with at least some commonality to create cost-effective group retirement plans, employer groups and associations are a perfect place to start. Both have access to a significant base of employers with common denominators such as a common geographic location, which the Department of Labor said is a sufficient nexus to join a closed MEP.

By sponsoring a MEP, association or employer groups can enhance their benefits, better support their members, increase engagement, and even boost membership.

The value in one payroll provider

Another relationship that’s highly relevant in the MEP universe is payroll providers. Having a number of disparate payroll providers in a MEP can be an administrative nightmare.

Since accurate payroll files are critical to administering the plan, some MEPs engage a separate data aggregator to process those files, which adds time and cost while making the plan more vulnerable to mistakes just by virtue of having another third-party provider involved in plan administration.

Therefore, having one central payroll system in a closed MEP is a huge value-add, and triangulating the payroll relationship with an employer group or association is an even stronger offering. Forward-thinking advisors will try to connect associations and payroll providers in a MEP structure for maximum efficiency with optimal cost designs.

Start the MEP discussion

Overall, advisors should be thinking about MEPs not just as they relate to their clients, but as they relate to their own business models as well. And while the future of MEPs may currently be in limbo, they are still a worthwhile discussion point for advisors in the small plan market.

If nothing else, conversations about MEPs give us all an opportunity to have transparent discussions around the future of retirement for companies of all sizes. And once the passage of open MEPs comes into play, advisors who take steps now to make changes to their business strategy will already be ahead of the game.

Ben Thomason is the Executive Vice President, Revenue at Vestwell, a digital platform that makes it easier to offer and administer retirement plans. Thompson leads the sales and service operations with a focus on expanding the firm’s current advisor relationships, building new strategic institutional partnerships, and overseeing plan sponsor support. 

Maximize Savings with a Safe Harbor Plan…And Soon

safe harbor

Safe harbor 401(k) plans can be a win-win for employers who want to maximize tax savings and retain employees. There is still time to reap the benefits for 2019.

1. Safe harbor basics

A safe harbor is like a traditional 401(k), but the employer must contribute, and contributions become fully vested when made. Contributions can either be limited to employees who make deferrals or offered to all eligible employees.

2. The trade-off may be worth it

Unlike traditional 401(k) plans, safe harbor plans automatically pass a number of required tests in order to keep your plan tax qualified and avoid other penalties and costs. These plans can be a great choice for small businesses that may have trouble passing nondiscrimination testing. For example, a family-owned or small business with more highly compensated employees relative to “rank and file” or non-highly compensated employees may otherwise have difficulty passing compliance tests.

3. More good news

The business owner can contribute the maximum annual deferral amount to his/her own 401(k) plan ($18,500 plus any catch up contributions), receive additional savings from the company’s matching contributions (they’re an “employee” too) and, come tax time, the business can deduct all matching contributions (up to the $55,000 IRS limit).

4. There is still time to maximize the savings for 2019

Safe harbor plans must be in effect three months prior to the plan year-end date, which means eligible employees must be able to make salary deferrals starting no later than the payroll period that ends on or after October 1 of the plan’s first year.  This means plan sponsors must make decision and sign necessary documentation by September 1.

5. If you already have a plan, you can take advantage too!

If you offer a different plan, but would like to take advantage of Safe Harbor benefits, here are dates to know:

  • By or before November 30, 2019: Your provider can amend your plan or start a new plan with a safe harbor provision for the following year
  • December 1, 2019: Your employees receive a 30-day notice of plan revisions
  • January 1, 2020: Safe Harbor provision takes effect and exempts the plan from nondiscrimination testing

Overall, there are benefits to any type of retirement offering, but a safe harbor plan can be a smart decision for many companies, particularly for small business owners. If you have any questions about whether a safe harbor plan is right for you, reach out to info@vestwell.com at any time.

Previous Webinars

 

4 Steps All Companies Should Take to Protect Themselves from Retirement Plan Litigation

By Allison Brecher, General Counsel, Vestwell

More than 100 lawsuits were filed in the last two years against plan sponsors and advisors, claiming that fees charged to them by their 401(k) plans were excessive. This litigation has resulted in hundreds of millions of dollars in settlements, significant reputational damage, and countless hours spent on defending litigation instead of servicing clients. Worse yet, when the stock market declines, we can expect more filings like these. In addition to litigation over failures to make reasonable decisions for plans, the Department of Labor restored over $1.6 billion to benefit plans to correct each plan sponsors’ failure to follow its own internal procedures.

Fortunately, many of these types of claims are preventable. With a little time and preparation, advisors, plan sponsors, and other fiduciaries can take steps to minimize their risk and even eliminate it almost completely.

  1.  Create internal policies and follow them.

Every plan sponsor and fiduciary should have a written guide – even if it’s just one page – that lists who the plan service providers are, what each one does, who makes decisions for the plan about investments and other plan features, and how often those get decisions reviewed. Courts have repeatedly dismissed claims where the plan sponsors provided evidence that their plan has internal procedures about plan-related decisions and that they were followed. There are many free online resources to help sponsors conduct fiduciary training, vet their service providers, and assess conflicts of interest that might impair their obligation to serve their participants’ best interests. Don’t wait for litigation to jump into action.

  1. Benchmark the plan’s costs to make sure they are reasonable.

One of the most often litigated claims against plan sponsors and advisors is that they permitted the plan to incur unreasonably high costs. The regulations are clear that the plan does not need to engage the least expensive provider and cost is not the only criteria to determine whether a provider’s or investment’s fees are “reasonable.” The plan sponsor or advisor should take stock of each service provider’s services, evaluate them, and document the review of them.

  1. Identify and disclose all actual or potential conflicts of interest.

Service providers should disclose their conflicts of interest to the plan sponsor so that the sponsor can make an informed decision that aligns with their participants’ best interests. Sadly, not all providers do. If the same company that serves as the plan’s recordkeeper is also providing the investment options available to plan sponsors or receiving other indirect compensation from the investments offered by the plan, there may be a conflict of interest. Conflicts can only be managed if they are disclosed.

  1. Give participants clear and complete information about the plan.

It is astonishing how many claims could have been avoided had plan fiduciaries been more transparent in giving plan participants information. This could be as simple as giving them materials about joining the plan and how to invest through an email blast or mailing. Tell participants in “plain English” what they need to know about the investment options, eligibility requirements, employer match, and other basic plan features.

Complacency about proper retirement plan management is a significant business risk, but there are easy ways to manage it. Advisors and plan fiduciaries can use these lessons of litigation to help plan sponsors ensure they are properly setting up their plans and keep them out of trouble.