Broker Check

The New Deal

| October 23, 2017
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Have you benchmarked your recordkeeper lately?

The recordkeeping marketplace’s rapidly changing dynamics can offer you a good opportunity to renegotiate your plan’s deal and get significant cost savings.

Several changes have put pressure on recordkeepers to lower their fees including fee-disclosure regs that took effect a few years ago, more fee-focused participant lawsuits, and sponsors’ growing desire to ensure the reasonableness of their plan fees. Some recordkeepers have exited the business, while others have merged with other providers; these consolidations can impact recordkeeper services for better or worse. As all that plays out, recordkeeping technology keeps steadily improving, which gives sponsors a fresh chance to enhance services for both participants and themselves. 

We think it’s important for you to benchmark your recordkeeper every year. For each of our sponsor clients, we benchmark their recordkeeping fees annually as part of a broader report that also assesses plan investment fees and our own advisory fees. At least every three years, we do a deep-dive benchmarking report on a plan’s recordkeeper, using Fi360, Inc. technology that allows us to compare the fees and services of the plan’s recordkeeper with up to 80 providers. Sometimes we do the deep dive more often, such as when it makes sense to find out if a very fast-growing plan still pays a reasonable fee for its current asset base. 

We can’t guarantee how recordkeepers will react, but when we do a benchmarking report that clearly illustrates a plan client currently pays above- average fees and/or gets below-average services, recordkeepers usually will renegotiate the plan’s deal with us. This happened when we came on board as advisor for a local credit union that wanted our help to implement good governance processes for its mid-size plan. Best-practices governance includes committees understanding plan fees and the value received for them, so we did a benchmarking report on the plan’s recordkeeper. We found that the plan paid rather high fees for services received; and after talking to the sponsor, we approached the recordkeeper to renegotiate. Without any fuss, the recordkeeper agreed to cut its fees for that plan by 30%.

Another time, we started working with an engineering company that asked us to look in depth at their mid-size plan’s current costs and the services participants and the plan received in return. Again, we found the recordkeeping fee out of whack in relation to the services. We helped renegotiate the deal, and over the next year the recordkeeper reduced its fee by more than 45%, while also improving services for participants and the sponsor. The recordkeeper now comes  on site annually to help with employee education; and for the first time, it assigned a relationship manager to be the sponsor’s point person. 

Having detailed data helps these renegotiations go more smoothly. In our in-depth benchmarking reports, we look closely at the value a plan client currently gets for the fee paid. When we talk with clients about the results, we focus on certain parts of the report: the plan fee section, which breaks out a vendor’s fees in detail and compares them to other recordkeepers; and a comparison of providers’ different value propositions, which spells out the range of services they can offer the plan.

I've seen how powerful the deep-dive report can be for sponsors who haven’t done a detailed benchmarking exercise for their recordkeeper  in several years. It helps bring to light not only the services their plan actually receives but, also provides a full scope of their recordkeeper’s capabilities, including options they might not be not utilizing. For example, some recordkeepers will let plans outsource additional administrative duties to them, relieving time-pressured sponsors of more of that burden. Some recordkeepers have developed the technology to do personalized participant communications targeted for specific groups in an employer’s workforce. Learning about what the recordkeeping marketplace currently offers can be a real “wow” moment for sponsors, and a motivator to negotiate for better services. 

We help plan sponsors renegotiate a plan’s recordkeeping deal carefully. We want our plan clients to pay reasonable fees for the services they receive and there’s a line we don’t cross: pressuring a recordkeeper into a deal that doesn’t make business sense for the provider. The recent “race to the bottom” by some plan sponsors to get the lowest possible fees has led some profit-squeezed recordkeepers to respond by cutting back on staffing—which means that participants in those plans may end up getting lower-quality services. If your plan pays average fees and gets above- average deliverables in return, I’m fine with that.

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