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RETIREMENT PLAN INSIGHTS
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Comparing Plans The Right Way
James Lorenzen, CFP®, AIF® | April 10, 2012 |
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 A smart fiduciary 'best practice' is to compare your plan to others on an annual basis utilizing an independent third party to remove any provider or vendor prejudice in the data. After all, where did the data come from? The recordkeeper? 5500s? RFPs? 5500 data is dated and often misleading; RFPs are 'bids' of intent. The recordkeeper could be couching numbers in a difficult to understand structure.
Even in my own practice, I use an independent third party for providing the benchmarking data just so my clients will know the study is non-conflicted. The study adheres to the following rules:
- A minimum of 25 similar plans with 9 similar aspects, such as
- Similar assets
- Similar number of participants
- Similar % of index fund assets
- Representing at least 10 different vendors with both bundled and unbundled structures
- No outliers either below 5th percentile or above the 95th percentile are considered
A good study should show what the plans are actually paying, not simply a 'bid'. Once completed, total plan costs are compared with the benchmarking group in an overview; but, there's also a review of where all fees are derived and who's paying those fees: company billed, investment off-setting credits, wrap fees, participant charges.
The review should then show how those fees are used and whom do they pay: the record keeper, advisor fees, money manager fees, custodians, trustees., etc. Ideally, they should be presented in dollars, basis points or both.
Then, of course, comes the test for reasonableness in light of the service provided since, of course, cost is a function of value.
If you haven't conducted a benchmarking study in some time, you should be begin now. Many plan sponsors put this off thinking it has to involve a full-blown RFP process; but, it really doesn't and can be done quite reasonably.
Jim
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 About IFG
The Independent Financial Group is a Registered Investment Advisor providing retirement plan investment and fiduciary consulting to plan sponsors on a fee-only direct-payment basis. IFG acts as our client's advocate in the financial marketplace, providing independent and non-conflicted guidance. IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description. In adition to benchmarking, provider searches, investment due-diligence, and fiduciary services, IFG helps plan sponsors organize and maintain required documentation.
About Jim Lorenzen, CFP®, AIF®
James Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and an Accredited Investment Fiduciary® in his 20th year of private practice with clients located in New York, Florida, Colorado, and California. Jim has been a headline speaker on financial and organization development topics at more than 500 conventions throughout the United States, Canada, and the U.K. His articles have appeared in more than thirty publications, including The Journal of Compensation and Benefits, The Profit Sharing Council of America's Insights, and The National Management Association's Manage. He's also been interviewed on American Airlines' Sky Radio and by The Wall Street Journal for Smart Money magazine. More about Jim here.
Accredited Investment Fiduciary®
AIF and AIFA Designees have successfully completed a specialized program on investment
fiduciary standards of care. The curriculum is conducted by the Center for Fiduciary Studies in association with the Joseph M. Katz Graduate School of Business, University of Pittsburgh. Created by Fi360, training began in 1999 to provide the investment industry with the first full-time training and research organization focused exclusively on investment fiduciary responsibility and portfolio management. Designees are required to complete a rigorous training program, successfully pass an examination, conform to a code of ethics, and adhere to continuing education requirements on a yearly basis. These requirements ensure Designees are familiar with the prudent process developed by fi360, as well as kept up to date with recent industry events affecting fiduciaries.
About RPAG
In order to provide IFG clients with the highest standard of `best practices' and institutional-level services, while still maintaining a conflict-free independent environment. IFG has retained Retirement Plan Advisory Group (RPAG) to serve as a `back-office' consulting and technology resource. RPAG provides IFG with highly experienced `back office' of consultants and a state-of-the-art technology platform that support both IFG and plan sponsor clients. The RPAG network includes 350 member firms in 45 states serving approximately 20,000 retirement plans with $65 billion in assets. In short, everyone wins: This back-office support in design, ERISA issues, education, and technology allows The Independent Financial Group to provide institutional-level service without the conflicts of in-house product vending or hidden compensation arrangements.
About This Newsletter
Plan Sponsor Insights content represents the opion of the author. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.
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