Caution.  Detours Ahead.

Last year, I worked on a piece that addressed the changing nature of retirement plan recordkeeping and the potential impact on plan sponsors, participants, and the duty of fiduciaries.

At the same time, the very nature of the economic relationship between vendors and plans has been changing, those who should be ringing alarm bells and helping plans manage emerging potentials for conflicts-of-interest sit silently.

In the 16 years we’ve been helping plan sponsors develop and operate more efficient and effective retirement benefit programs, the world has changed.  Retirement plan consulting firms serving as fiduciaries to their clients have gone from a rarity to more common place.  The growth in the market has brought more entrants and fee compression, not dissimilar to what recordkeepers have experienced.

Every day I open my email to an array of marketing emails promoting tools and strategies to increase margins, make my client engagements stickier, and differentiate us from competitors.  The investment consulting industry appears to be rapidly abandoning the role of an independent advocate in favor of something different.  Firms running to this new model seem to be adopting the same conflicted models of the recordkeepers they are tasked with monitoring.

  • Discretionary investment management services
  • Custom target date funds
  • Cross selling products and services
  • IRA rollovers
  • Custom managed accounts

Over the next several months, I’ll write more about the above themes and issues they create for plan fiduciaries.

When I travel for business, I listen to podcasts.  Recently, I finished a series of podcasts by author Michael Lewis, called “Against the Rules.”  The theme of the series is the notion that referees and independent arbiters are under attack and only in areas where those independent arbiters have been coopted by the systems they stand charged with assessing do they thrive.  Of particular interest is Episode 4, “The Hand of Leonardo” that explains how art authenticators become corrupted by the industry they work within.

Trying to explain what differentiates our firm from others in a new bid process can be tricky.  The organizations we are talking to are incredibly busy, and their technical knowledge about the industry varies significantly from prospect to prospect. 

The good news is as an organization we have avoided the traps of compromising our independence, even at the expense of margins.  We created the firm to deliver the quality of consulting that we were unable to deliver previously in other settings.  That quality has made our client engagements very sticky.

And we are different.  Those differences require a more nuanced understanding of the industry but are true differences in philosophy over features.

We’re practical.  In my more than 20 years working with retirement plans, I have been astonished at how professionals take topics that are moderately complex and manage to make them even more confusing.  Talk with any one of us.  Our objective is to take topics that are moderately complex and make them understandable.

We’re impactful. Every one of our client engagements is at-will.  There are no hooks or complexities to make our clients stay.  They stay because of the impact we have period to period in aiding in the operation of effective retirement benefit programs.

We’re informed.  I’m not an expert in all areas of retirement benefit programs, IRS regulations, and DOL letter rulings, but we have developed a team of professionals that cover the gamut of our responsibilities to our clients.  Our consultants are not economically punished for bringing in support when their clients need it.

We’re integrated.  No one consultant sets policies for the firm or their clients.  Teams of consultants discuss, research, and test best practices and then we integrated those practices across the firm.

Last, we are independent.  Increasingly, investment consulting firms are being coopted by the service providers they are charged with assessing.  Recordkeepers fly consultants to beautiful hotels to educate them on industry trends.  Mutual fund companies give away tools to help analyze investment positions.  Managed account providers allow consultants to license technology to sell custom managed accounts to clients.

Our policy that prohibits us from receiving gifts, travel, meals, and entertainment from industry participants can be a hassle.  If I’m meeting with a client relationship manager for a cup of coffee prior to a client meeting to discuss what the client is interested in seeing, I need to buy my own coffee.  But the reassurance it provides our clients is worth the momentary awkwardness as we haggle about the Starbucks bill.

In the coming weeks, I will delve further into the five themes discussed above and the issues they create for plan fiduciaries - starting with discretionary investment management services.

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. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s clients.

Comment On This Article