Identifying the Right Recordkeeper and Making a Transition
Advisors routinely counsel clients on a mix of 401(k) plan investment choices while bundling other plan services, such as recordkeeping, compliance, and custody of plan assets. Identifying providers that offer the best menu of services at the most competitive rate is critical. Equally critical is identifying a high-quality recordkeeper.
Why is a quality recordkeeper so important? Recordkeepers provide 401(k) plans with a variety of services including:
- Tracking employee contributions, investments, and earnings
- Generating account statements, including information about contributions, account balances and investment performance
- Managing loans, withdrawals and other plan distributions
- Maintaining the plan website and providing support to plan participants, both online and over the phone
Assessing When to Transition to a New Recordkeeper
As plan assets grow and employee participation changes, a plan’s needs evolve and a new recordkeeper can sometimes provide superior services at a more competitive rate. Advisors should be open to this possibility to guarantee their clients are providing employees with the best possible service.
Dan Campanelli, a retirement advisor channel manager for Paychex, discusses the features and benefits advisors should seek when transitioning a 401(k) plan to a new recordkeeper. Campanelli manages relationships with financial advisor firms (or broker-dealers) and registered investment advisors (RIAs) nationally and cites several features advisors should look for when transitioning a plan to a new recordkeeper:
- An open architecture platform that provides access to as many investment options as possible. Many advisors prefer a provider that is not affiliated with a particular mutual fund, insurance company or money manager.
- Fee transparency. Fees should be clearly stated and flexible in terms of who — plan participant or plan sponsor — pays them. Some advisors prefer a flat fee per employee instead of fees based on plan assets.
- Superior client service. Some recordkeepers offer dedicated account managers to make it easier for advisors and employers to access information about the plan and how it operates.
- The ability to add compliance to the menu of services.
- State-of-the-art technology. This includes systems that track investments and contributions, as well as an employee website and its ability to handle any transaction an employee wants to conduct online, such as changing contributions or investments, taking a loan or requesting a distribution.
Campanelli stresses that open architecture and investment options are critical. “When most plans convert, the advisor has already selected a menu of investment options. They don’t want to have to change to different investment options.”
Support Is Critical
For advisors busy with multiple plans, the more support a recordkeeper can provide, the easier it will be to manage the plan. Campanelli says having a website that enables advisors to provide details on every plan they have – including details such as participants that are newly eligible to contribute, who is eligible but not contributing, and a report on overall plan health – is valuable. The report in particular “is a great tool for advisors,” says Campanelli. “It broadens the discussion [advisors] can have with plan sponsors.”
A recordkeeper that offers a smooth transition process is particularly attractive to advisors and their 401(k) clients. Completing the application, meeting with the new account representative and outlining the steps necessary to transfer money from the old custodian to the new one are part of this process. Campanelli says most of the activity should “happen behind the scenes” with little involvement necessary with the advisor or his or her client.
Most employers are concerned about the website and online experience the new recordkeeper can provide employees. The website should be accessible on both computer and mobile devices. Participants who prefer to call in and interact with a mobile response system or speak with a representative are also important. The website should permit easy enrollment, and the advisor and plan sponsor should have the same view as a participant to make answering questions easier. Many recordkeepers include a retirement readiness tool so participants can see the impact of various savings rates and how different market conditions affect their savings goals.
The Bottom Line
For most advisors, the bottom line is convenience for the employer/plan sponsor, the employee, and even the advisor. A recordkeeper that can provide such convenience at the most competitive rate is likely to carry the day — and be selected to provide their services.