One of the nation’s ten largest waste haulers had a $70 mm dollar 401k plan and a $45 mm Defined Benefit Plan. After an outside advisor warned the sponsor they might be paying too much in their overall fees, they decided to put the plan out for bid and ABG was asked to respond. The plan had an advisor and was using a top 10 institutional recordkeeper. We received the RFP as an independent recordkeeper.
We discovered that there was a large revenue sharing component to the plan, which appeared to lower participant costs, but because of higher fund costs and an above average advisory fee, the overall costs were out of line. We figured we could help the new advisor do a better job with lower overall costs, while maintaining or improving the service and employee education levels.
With the new advisor we replaced the revenue sharing funds with non-revenue sharing funds, and those with lower cost structures but a high quality track record. We explained to participants that while the revenue sharing old methodology didn’t show up on their statements, that by effectively lowering overall plan costs by forty percent, they were far better off in the long run.
We also utilized skilled professionals to educate the participants on the new plan, almost an entire lineup of CFPs doing the education.
And it helped that we had many referenceable clients with blue collar workforces.
Best Practices Learned
This 401k plan had gone from $50mm in assets to over $70mm in assets quickly due to market gains and new participants. Their prior advisor didn’t move quickly enough to adjust their fees to more market oriented pricing.
It pays to have referenceable clients in all your major employer industries, whether it’s industrial, medical, legal, or whatever your niche is. Sponsors want to be able to tell their board that they’re going with a firm who has similar clients as them and has served them well over a long period of time.
Revenue sharing funds in 401k plans are becoming like landline telephones. A few still out there, but being replaced by far better tools.
Advisors should pick a recordkeeper who is flexible and nimble to react to the changing needs of the marketplace!