Steele suggests that advisers look at open architecture in five parts. First, there is fiduciary oversight. The sponsor wants the adviser to build a plan he or she feels is strong, but at the end of the day, the sponsor wants protection. The most important component, according to Steele, is participant education. He says it needs to really robust and involve more than just directing participants to a Web site. After those first two elements are given an ample amount of time, the adviser can then consider plan investments, plan costs, and customizing overall plan design. Steele recognizes that it requires a lot of work, but when done correctly, it can really make a difference in people’s lives.
Pros and Cons
In his experience, Rogers has seen several pros and cons of open architecture. The pros include:
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The ability for an adviser to offer any mutual fund option to a plan is a great way to show value.
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The need to change recordkeepers because of poor fund performance disappears.
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The customization is appealing to clients.
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It can signal to a prospective client that you are willing to go that extra mile for them.
The cons of open architecture include:
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Requires the adviser to work only in a fee-based capacity.
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Takes more work and time to service an open architecture plan.
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Technology offered by most open architecture providers is not as robust as most bundled providers.
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The level of revenue sharing provided to the open architecture provider can significantly affect the economics of the plan.