In Practice June 28, 2018

LPL Recalibrates Retirement Business for the Long-Term

Bill Beardsley, head of Retirement Partners at LPL, gives his take on the firm’s decision to close the Worksite Financial Solutions program, and on his plans for lasting growth in the DC retirement space.

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When Bill Beardsley, head of the Retirement Partners business at LPL, joined the firm some five years ago, there were perhaps 300 advisers in the business who could be considered 401(k) plan experts.

Since then, both the number of retirement specialists at LPL and the number working in the broader adviser marketplace have grown strongly. In the last year alone, the LPL Retirement Partners program has attracted some 200 new advisers, with 1,600 members now working on LPL’s “hybrid platform.” Nearly 1,000 other advisers support retirement plans on LPL’s corporate platform, and overall, more than 6,000 in LPL’s total adviser pool touch at least one retirement plan, many of them non-specialists using LPL’s Small Market Solution.

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With these numbers in mind, one can understand the frustration among LPL leadership at the suggestion that their decision to close the Worksite Financial Solutions program signals that the firm—which is both a registered investment adviser (RIA) and a broker/dealer—is turning away from retirement plan services.

Asked for his take, Beardsley recently told PLANADVISER that he continues to “get some questions about this from time to time.”

“I’m happy to talk about this and explain our thinking. Worksite was a big initiative for the Retirement Partners Group here at LPL,” he said. “In sum, the problems that Worksite was trying to solve were really a series of important questions that continue to influence the direction of our industry. How do we help our advisers provide wellness solutions to the participants within 401(k) plans? How do we help them provide to their clients more holistic planning and investment opportunities? And finally, how do we help advisers provide real advice to their clients within 401(k) plans?”

Some industry watchers (and in fact some advisers quoted from within LPL) have suggested that the closing of Worksite signals that the firm is no longer interested in solving these questions, but Beardsley rejects that characterization.

“These questions and these needs are still out there, and we are still looking at building new solutions to solve all these challenges,” he explained. “We’re having conversations with our partners and our advisers about this, because we all agree that these are important questions, and that we need to keep pushing our business forward. Worksite was a solution that was great for what it was, but we have come to believe that we need something that is more scalable and that can be more broadly adopted across our business.”

Emphasis on scale 

“As your readers know, the challenge and opportunity for the broker/dealer in this conversation is, how do we make servicing retirement plan participants scalable and efficient for our advisers across our broader enterprise?” Beardsley continued. “That’s what we’re building out right now, so I encourage your audience to stay tuned.”

At a high level, LPL is looking to create something that will not just be focused on a few hundred Retirement Partners advisers. The leadership, Beardsley emphasized, wants to deliver something that is “deliverable across the enterprise and that leverages our scale.”

“So this is why you have heard the leadership here at LPL talk about building a more unified sales structure,” he noted. “We continue to focus on this. There are more talks happening right now. We are working to stand up something that is actually leveraging our entire enterprise to meet these client needs and these adviser needs more broadly. We’re moving towards more capabilities that are more broadly scalable across all our advisers.”

Fiduciary service for all? Not necessarily 

“We are also working to align ourselves with what the industry best practices have become on the wealth side,” Beardsley said. “If you think about how an adviser sets up their business from a wealth management perspective, they either build out that business in a rep-driven model where the adviser is also the discretionary investment manager, or they go with an outsourced centrally managed solution.”

The existing LPL Retirement Partners structure allows advisers to serve in that first capacity, along the lines of the rep-driven model where they are the fiduciary taking care of the client portfolios. But the firm has also been building out capabilities on the other side, Beardsley explained, “because there are a lot of advisers that want to take the centrally managed, outsourced approach.”

“To be clear, that’s what our Small Market Solution is aligned to do,” he said. “It allows advisers to leverage our expertise and then focus more on the relationship management role. This work reflects something that the industry is currently grappling with, I think. There are a lot of clients who want a retirement plan specialist who will directly act as a fiduciary investment adviser. But there are also situations where the need is not as great for the adviser to become a pure 401(k) specialist, and they can outsource that work to LPL while they continue to do their job in the relationship management role.”

Compliance June 28, 2018

University Points Out Differences Between 403(b)s and 401(k)s in Motion to Dismiss Lawsuit

George Washington University has been sued over fees for its 403(b) plan.

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Earlier this year, a lawsuit was filed against George Washington University (GWU) over fees related to its 403(b) plan.

As with other similar complaints in the wave of lawsuits against higher education institutions, the GWU complaint says the company failed to use its bargaining power to negotiate lower fees for recordkeeping and investments.

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“Rather than negotiating separate, reasonable, capped fees for recordkeeping, Defendants continuously retained share classes of Plans investment options that charged higher fees than other less expensive share classes that were available for the same funds. As a result, Plaintiff and Class members paid an asset-based fee for administrative services that continued to increase with the increase in the value of a participant’s account even though no additional services were being provided,” the complaint says.

The lawsuit also accuses the university and other 403(b) plan fiduciaries of attempting “to insulate themselves from liability” by offering a large number of investments in the plan and leaving it to participants to choose from them. According to the complaint, the plan included about 45 investment options from TIAA, more than 20 investment options from Vanguard, nearly 50 investment options from Fidelity; the recordkeepers for the plan were TIAA, Fidelity and AXA.

Not only does the complaint accuse the fiduciaries of keeping high-fee investment choices in the plan, it says they did not monitor the investments and kept low-performing investments in the plan. In addition, by selecting as the plans’ principal capital preservation fund an insurance company fixed-income account—the TIAA Non-Benefit Responsive Traditional Annuity—that prohibited participants from re-directing their investment in the Traditional Annuity into other investment choices during employment except in ten annual installments, the defendants effectively denied participants the ability to invest in equity funds and other investments as market conditions or participants’ investment objectives changed, the complaint says.

Motion to Dismiss

This month, GWU defendants filed a motion to dismiss the case. In a statement in support of the motion to dismiss, before addressing specific claims, the defendants presented a history of university 403(b) plans’ use of annuities.

Similar to arguments in a brief of amici curiae in the 3rd U.S. Circuit Court of Appeals in support of the University of Pennsylvania for a case concerning the management of its 403(b) plan, the GWU defendants note that 403(b)s have always looked differently and were set up for a different purpose than 401(k) plans. Since 1906, colleges and universities implemented a system of annuities that achieved a similar guarantee of lifelong income as corporate defined benefit (DB) plans, the document says. In addition, it notes that, unlike 403(b) plans, 401(k) plans were initially envisioned as supplements to DB plans, so they were not built around annuities. The defendants also note that the Government Accountability Office has endorsed an emphasis on lifetime income in 401(k) plans.

The document goes on to argue that the plaintiff in the case lacks standing because when she terminated from GWU, she signed a release of claims, and because she did not invest in the TIAA investment options she challenges.

The defendants also argue that its use of multiple recordkeepers “fails to support an inference of a flawed decision-making process” and the plaintiff’s allegations that recordkeeping fees were too high “are inadequate to state a claim.” As for claims relating to the plan’s investment options, the defendants say the plaintiff “does not adequately allege that the university failed to monitor investment fees,” and they point out that other courts have dismissed allegations that plans offered too many investment options.

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