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When Transitioning Providers, Start with Advisor

For many companies sponsoring a defined contribution (DC) plan like a 401k or 403b, transitioning providers like record keepers or advisors is a new experience. There is no play book and little guidance under ERISA other than that the fees must be reasonable for the services offered. The controller at a 550 employee not-for-profit organization attending a TPSU program held at Fordham University’s midtown Manhattan campus briefly reviews the process his organization followed.

The key to success when transitioning providers is sequencing. Before looking for a new record keeper, the organization found a new advisor who helped with the rest of the process like finding a new record keeper. Many DC plan sponsors reverse the order which makes no sense. Using a healthcare analogy, the advisor is the doctor, the record keeper is the hospital and the money managers are like the pharmaceutical companies. Get a good doctor to guide you through the process.

What would that controller do differently? Thinking back, he would have surveyed employees to identify issues, needs and desires to help them find a record keeper and advisor that meets those needs.

Some experts believe that selecting the target date (TDF) provider or default option in the plan should come before finding a record keeper after hiring a new advisor. With 60-70% of new contributions flowing into a plan’s default option, and almost 80% of plans using a TDF, finding the right default option is key to plan health and employee success. Some record keepers offer limited TDF options, usually their own proprietary product, which might not be suitable for the company and their employees.

DC plans transition providers on average every five to seven years so be very thoughtful on the front end because the process should be repeated as seldom as possible which is why that finding advisors and record keepers that are capable of meeting an organization’s needs as they grow is also key.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein
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