The Best Defense

Given the rash of lawsuits being forged against retirement plan sponsors and providers, we thought an article exploring how sponsors and their advisers can best navigate such tribulation would offer valuable insights. Our cover story, “Under Armour,” features leading attorneys’ insights and advice for how to do just that. The Supreme Court’s decision last year in Tibble v. Edison has emboldened litigants to charge plans with having high fees and conflicts of interest. Although attorneys agree there is no silver bullet, the best practices for avoiding such lawsuits are to thoroughly explore the investment options available to a plan and to document how all decisions are made.

Large plans especially should use their leverage to bargain for lower fees and seek out lower-cost alternatives to mutual funds, such as collective trusts or separate accounts, as fees were often at the core of recent lawsuits. Equally important is consistent scrutiny of performance. It is also wise to respond swiftly to any questions or concerns from participants and to educate them thoroughly about their plan. For all of the types of cases being brought forward, fiduciaries’ best defense is to prove they are acting in the best interests of the participants—and advisers can help their clients by documenting items to prove that.

When seeking out sources for my feature “Taking the Pulse,” about surveying plan sponsor clients to improve advisory practices, I had to search rather far and wide to find advisers who do this. Perhaps it should be more common, however, as advisers who conduct surveys believe these provide invaluable information they’d be unable to glean from their clients in face-to-face meetings, as surveys allow for anonymity. Management at larger practices, who might feel removed from their clients, also can benefit. In this day when more advisers are looking to enter the retirement plan industry—and are soliciting your clients—surveying them each year can help you thwart those overtures.

Are you losing money on any of your client relationships? Retirement plan advisers, particularly those starting out, may be so anxious to win business that they don’t price their services properly. “Assessing Value” can help you understand the profitability of your client relationships by clearly defining your services upfront, then benchmark and set the fee to ensure fair profitability. Once a client is on board, it’s important to track your staff members’ time and, if the hours involved aren’t supported by your fees, to renegotiate what services you will offer. One adviser suggests that your clients should provide you with a 20% to 25% profit margin.

It may be surprising, because so many plans have already embraced target-date funds (TDFs)—particularly as their qualified default investment alternative (QDIA)—that investment management firms continue to introduce new ones. “TDF Evolution” finds that these new offerings are, indeed, different in that they’re more diversified, have more equity exposure at their landing point, mitigate risk and include retirement income solutions.

As always, we hope these ideas invigorate your business and help you boost profitability.