Advisors can’t care about fiduciary duty and recommend bad TPAs
When the cheaters were caught cheating at a game of blackjack, Sam “Ace” Rothstein wanted to make an example of them at the Tangiers Hotel in Casino. He had the security guards use a hammer on one cheater’s hand and then told the other one: “You can either have the money and the hammer or you can walk out of here. You can’t have both.”
There is so much talk by advisors on how plan sponsors need to be concerned about their fiduciary liability, yet, when it comes to choosing the third party administrator (TPA), there are many advisors who just recommend one that is cheap. They don’t see the value in recommending a TPA that might cost a couple of bucks more but are cheaper in the long run because of the lack of compliance headaches.
I was working with a plan provider who was being told by an advisor that they were more expensive than the other TPA. When I heard of the TPA, I bristled because it’s a low-cost provider who does as bad as a job as one of those large payroll provider TPAs. The biggest threat to a plan sponsor’s liability is compliance errors because they’re easy to create, hard to discover, and expensive to fix. Plans don’t get into trouble with the IRS because the plan doesn’t have an investment policy statement or a small-cap value fund in the lineup. They get in trouble most of the time because something on the administration done was done incorrectly.
So I believe that an advisor who just sees a TPA as a price, rather than a service, is talking out of both sides of their mouth when they caution a plan sponsor about trying to minimize their liability. Friends don’t let friends drink and drive and good 401(k) advisors don’t recommend TPAs just based on price.