Fiduciaries are required by ERISA to monitor service providers to the plan. That includes monitoring for any conflicts of interest.
We have identified five areas where recordkeeping vendors have tried to monetize their relationship with retirement plans: Proprietary investment management, managed accounts, IRA rollovers, annuitization, and cross-selling retail financial products. These don’t, by definition, constitute a conflict of interest, but whenever a recordkeeper stands to be compensated by choices made by the plan fiduciaries or plan participants, extra care should be taken.
Below are a sampling of questions to assist in monitoring a recordkeeper for conflicts of interest in these five areas, plus additional questions around the compensation of individuals who interact with participants.
Proprietary Investment Management
- Do you require the use of a proprietary investment product in investment menus?
- Do you charge a fee for the use of some third-party investment products?
- What percentage of the defined contribution retirement plan assets you recordkeep are in proprietary investment products?
- What percentage of the plan’s assets are in proprietary investment products?
Managed Account Services
- What fees do participants pay for managed account services?
- How many participants in the plan currently use managed account services?
- What revenue was received from managed account services in the plan in the last 12 months?
- What percentage of the defined contribution retirement plan assets you recordkeep are in managed account products?
Proprietary IRA Rollovers
- Do you provide fiduciary advice, as defined by ERISA, on distributions from the Plan to participants?
- What percentage of Plan participants rolled their assets into proprietary IRAs?
In-Plan Annuitization
- What percentage of plan assets were annuitized in the last twelve months?
- How many plan participants annuitized some or all of their balance in the last twelve months?
Cross-Selling Retail Financial Products
- Can plan sponsors strike specific communications or categories of communications from delivery?
- What job titles are authorized to provide employee communication services to participants in the plan?
- Which, if any of those titles receive compensation from commission?
- What are the mechanisms for reviewing the performance of plan representatives?
- Are you willing to engage in non-solicitation arrangements with clients when requested?
Compensation
- Are individuals interacting with the plan or plan participants compensated for any of the following:
- Transferring IRAs or other qualified plan assets into the Plan
- Transferring plan assets into proprietary IRAs or other proprietary non-plan related qualified assets
- Selling non-plan related products and services to plan participants
- Selling plan advisory services to plan participants
- Selling non-plan advisory services to plan participants
- Transferring assets into specific investment products or managed account products
- Annuitizing plan assets
We recently held a webinar discussion covering retirement plan vendor conflicts. Watch the recording. Also, we have a collection of resources available to help you identify, manage, and avoid vendor conflicts. Download the resource.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.