Innovation begins within, but certainly, those with whom we surround ourselves with influence our ideas, confidence, and ability to grow and succeed. As a 401k plan advisor, it’s easy to get caught up in the numbers and lose focus of the broader scope of how a retirement plan could be structured for maximum benefit, not only for the client, but the advisor as well. Third party administrators (TPAs) are experts in ensuring plans are in compliance with IRS rules and regulations and are designed for optimal tax deductions and savings.
TPAs also help bolster your firm by providing your client confidence and allow you to manage more. Here are four of many reasons why a TPA relationship is beneficial to your firm and your clients.
1. Protect Your Assets
It’s simple to see the outcome of an account not doing well financially: you’ll likely lose the client, or at least sour the relationship. Nevertheless, what happens if the client, whom you manage, gets fined or is paying fees they shouldn’t have to? Well, you might not only lose the client, but you could be sued for lack of oversight.
Hiring a TPA helps alleviates this risk.
The TPA manages the ever-changing rules and regulations of the Internal Revenue Service (IRS), Department of Labor (DOL) and in the case of defined benefit pension plans, the Pension Benefit Guarantee Corporation (PBGC). This allows you to focus on managing Plan assets. Working with a good TPA should ensure that you, the investment advisor, can focus on what matters to you – the investments.
2. Manage More Assets With Brilliant Plan Design
Plan design can make a world of difference for certain clients. It can save them money through significant tax deductions and allow some of their highly compensated employees—usually the decision makers—to save even more through their retirement plans.
This means that you’re able to manage more money, and improve your client’s satisfaction. While losing one client might not feel like much of a hit at the time, in the long run increasing retention and managing more has a significant impact on your success and your firm’s results.
Through using precise calculations and complex compliance testing, a TPA is able to be your guiding light through plan design to ensure that the plan constructed specifically to meet the needs of the company. No prototypes or “out of the box” options – plans are customized to achieve exactly what your client is looking for – maximum tax deductions and increased wealth.
This can easily distinguish you as an expert in this field. Lastly, TPA firms run annual compliance testing for your client, requesting participant information including compensation, so you know that you have annual contact with the client. This allows you to focus on the area you excel in – asset management.
3. Grow Your Firm
Working with a TPA should be a mutually beneficial relationship. As we know, the financial industry is still largely referral based and reputation matters a lot. Having a TPA sit at the table with you improves your ability to gain new prospects, seal the deal with potential clients, and manage existing relationships. TPAs can begin to funnel new business to you through tapping into their existing network. Beyond, this relationship can easily be fruitful for bolstering your reputation as a firm as experts both in wealth management (after-tax) and retirement plan (pre-tax) assets.
With a TPA on your side, you’re able to showcase your authority and prove to your clients that you have the ability to manage them as they grow. Showing you’re an authority expert and answering ongoing client questions about tax deduction opportunities and plan management showcases your ability to grow with them. This prevents you from being outgrown by your client and allows you to increase retention and manage more funds.
4. Have Complete Information and Create Stickiness Among Clients
Often wealth managers (those who manage after-tax money) shy around the question of retirement plans, largely due to stepping into the world of ERISA without full knowledge. This missing conversation leaves a great deal of money on the table. Imagine if you, as the investment advisor, could take the leading role as the wealth manager and the retirement plan advisor.
It creates stickiness among clients because they’re more ingrained in your day-to-day and you’re able to provide valuable insight from start to finish for them without them having to hop back and forth between different advisors. It’s not an easy task, especially since you are entering the world of ERISA, but it’s a task that a TPA undoubtedly can help you achieve.
With a TPA, you’re able to have conversations confidently about the client’s retirement future without being shy about this [very important] subject. It also takes the emphasis off an advisors “commoditization” and focuses more on their tax needs.
Find A TPA
TPAs come in all shapes and sizes with a variety of specialities and strengths. Finding the right TPA firm for you and your client will likely takes time so it’s important not to rush the process. Ensure that the chosen TPA is one whom you want to work with regularly and you want to represent you in front of your client.
Beyond that, don’t become reliant on one TPA. Every client will have specific needs and it’s best to consider finding the best fit for each and every client. This broadens your network, while also proving to the client you have their best interest in mind.
Sheree Tallerman is the CEO of PlanPerfect Retirement, a TPA firm and service provider of inventive retirement plan strategies. She has been featured in Charles Schwab & Co., Inc’s. Plan Administrator News, Financial Planning, as well as The CPA Journal’s Employee Benefit column. She is a member of the American Society of Pension Professionals & Actuaries (ASPPA), Women Presidents’ Organization (WPO), and the California Society of CPAs.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
