There are clear advantages to having a short roster of
"preferred" or "approved" record-keeper partners, such as
ease, efficiency and leverage, advisers said. But there are also drawbacks,
such as greater difficulty winning new business and client risk.
"We have up to 10 preferred vendors, and probably six we like a lot
for different reasons," said Jason Chepenik, managing partner at Chepenik
Financial. "We've had as many as 18 and it's not fun. It's hard. So we're
actively trying to manage that list."
"You don't want to have one or two, but if I have 20 it's too
many," he added.
Record-keeping firms, which track participants' money in
defined-contribution plans and perform other administrative functions, come in
many varieties. Some specialize in 401(k) plans, others in nonprofit or
government-sector plans; some focus on large plans with hundreds of millions or
billions of dollars, while others may target plans with less than $20 million.
Some have specific investment requirements, while others are indifferent.
For this reason, working with a limited number of providers can help
advisers manage their business more easily from an operational standpoint, said
Nathan Fisher, senior executive vice president of Fisher Investments' 401(k)
"Each of the record keepers will have its own web interface,
terminology and reporting standards," Mr. Fisher said. "If you end up
with 10 record keepers, you end up with 10 different reporting standards."
Having too many partners can make it more challenging to track exactly
what each partner is doing, and client service could be negatively affected as
a result, advisers said. And concentrating more business among a smaller number
of firms can give advisers more leverage with the partners they work with.
For example, if there's a service problem, an adviser may be able to
more easily reach a record keeper's service manager to resolve the problem,
said Mr. Fisher, whose firm actively places business with around five record
"If we have enough plans with that record keeper, they're more
likely to take that call," Mr. Fisher said. "It's the adviser's
ability to advocate for the client."
The concept of culling an adviser's list of preferred providers gained
steam — especially among broker-dealers — as a result of the Department of
Labor fiduciary rule, which raised investment advice standards in retirement
accounts. In order to better manage their exposure to
regulatory risk, many brokerages limited their partners to record
keepers that provided access to third-party investment fiduciary services.
However, shortening the list of providers doesn't guarantee that the
total number of record-keeping options will also be low. For example, a record
keeper may have different platforms or different service models based on a
client's plan size that advisers must vet, said Susan Shoemaker, a partner at
Plante Moran Financial Advisors.
Her firm has a list of roughly seven go-to providers, but works with
about 25 different vendors total.
"If a client is happy where they are, is being served well and fees
are reasonable, we're indifferent as to where they are and don't try to move
them," Ms. Shoemaker said. "Unfortunately, that's how we end up with
as many as we have, which makes our life a little more difficult."
Forcing a new client to convert to an adviser's preferred record keeper
could deter business, Mr. Fisher said. It could ultimately dissuade a
prospective client from selecting an adviser. So opening up a preferred list
helps advisers to grow faster, he said.
Ms. Shoemaker also believes that narrowing a list too much could pose
problems for clients from the standpoint of their fiduciary liability.
"You could put the plan sponsor at risk for not really doing enough
due diligence just because you're not being more open about what you're looking
at," she said.
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