Thank you Bill Yoerger, President of OneAmerica Retirement, a division of American United Life Insurance (AUL) for your tremendous insights on the 401(k) Fridays Podcast! If you have not had a chance to listen to the episode yet, click below.
The retirement services business continues to get more complex, competition amongst all service providers puts pressure on fees, and litigation risk and regulatory pressures compound everything. What’s really interesting, is all of this is happening when the need for quality retirement solutions, services and consulting for both employers and employees is growing. As Bill mentioned, those who are still in this business and not fully invested in supporting the needs of employers and their employees on their path to retirement, a day of reckoning is coming. So, for today’s fiduciary fact, just like many other industries, go forward client expectations are increasing, margins are decreasing which means collectively the industry is being asked to do more with less.
With that said, employers now more than ever need to understand the key drivers of the business models of their service partners. At a minimum you should work to understand their core focus and what goes into their financial model to drive their revenue.
Couple examples, is your record keeper in the business because they are looking to grow revenue by providing core record keeping services? Or are they in the record keeping business because they hope it will lead to more sales of their higher margin proprietary mutual funds or opportunities to market their retail investment services.
Similar conversation for advisors and consultants. Are they in the business of providing advisory or consulting services to employers because that is their focus, or are they looking to create a broader platform to sell higher margin proprietary investment products, solicit employee rollovers and other retail services. While marketing or selling other products is not inherently bad or wrong, what employers do need to be careful about are conflicts of interest, which as been a big focus of 401(k) litigation.
Also, as we talked about with Bill, in a fast changing environment it is go to know if there are co-dependencies in your partner’s business models that could impact the level of service or costs for you or your participants. Now is the time to ask tough questions of your service partners, get a better understanding of how they earn revenue and how the changing landscape in the industry will impact them. Take the time now so you are not caught by surprise or left in a pinch in the future.
In closing, know who you are going to the proverbial dance with, are they bringing you because they want to be with you, or are you their ticket to get in the door so they can survey the crowd and look for other opportunities! After all, it’s folly not to know the motivations of your date to the dance!
If you would like some more personal support to better understand the business models of your retirement service providers or understand how the DOL Conflict of Interest rule could impact your plan, send an email to firstname.lastname@example.org. There is no pressure and no commitment, and who knows, we might be able to help!