Have I Got a Plan for You!

A recent article in the Wall Street Journal got us thinking. “Have I Got a Fund for You! Why Brokers Push Some Investments” written by industry observer Jason Zweig explains the potentially dubious nature of advisor fund recommendations. His basic premise is that some brokers/dealers receive revenue sharing payments to recommend funds and therefore have a conflict of interest to promote funds that pay higher revenue sharing payments. Other firms put a client’s interests first but constrain the choices of funds available to the advisor to recommend.

Does this concept apply to 401(k) service providers as well? Will a broker recommend or exclude a particular 401(k) service provider because that service provider is or is not on the B/D’s shelf? You betcha! Does the broker or advisor typically disclose this fact to their Plan Sponsors? Not in our experience.

Most of the major and independent broker/dealers have “approved” lists of 401(k) service providers that their advisors must use (with few exceptions) in selling a 401(k) plan. Typically, these service providers are the nationally known vendors such as Hancock, Principal or ADP. To add insult to injury, often these service providers will pay “marketing fees” or “training expenses’ to be on the B/D’s shelf. Pay to play! It’s similar to fund companies paying to be on recordkeepers’ platforms.

So, what’s a Plan Sponsor to do? Ask questions and read the fee disclosure notices. Ask your advisor if they are limited in which 401(k) service providers they can recommend and then make the decision yourself as to whether that limitation is salient. If you’re an RIA, know that these shenanigans go on in the B/D world and promote your independence. If you’re a traditional broker who is really interested in being in the 401(k) market, earn the necessary designations that will allow you to recommend any vendor you deem appropriate. Plan Sponsors are fiduciaries and to limit their choices is a serious handicap.