More Choices, Less Options

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The Commoditization of Recordkeepers: What Is It and Why Does It Matter to You?

You see it happening all around you – small, boutique stores are closing and being replaced by the big box behemoths. With the big box takeover comes some noticeable advantages – lower prices, more choices, and on-demand goods and services, but there are also distinct drawbacks such as less competition and commoditization. Consolidation leads to commoditization. Commoditization is the lack of meaningful differences in goods or services, which leads to the goods and services being sold on price alone with little to no consideration given to quality. And this trend is not only rampant in the consumer goods sector, but it is also having a significant impact in the 401(k) recordkeeping and administration world. There are continually less and less options to choose from with service models that are starting to look more and more alike. The more “boutique” style, purely recordkeeping and administration firms are gone giving way to one-stop-shop firms; where recordkeeping and administration makes up a very small portion of their business model and the services offered range from investment management to insurance to individual investor services to payroll processing.

So Many Departments, So Little Communication
Has this ever happened to you? You enter a retailer looking for a specific item, after a few minutes of scouring the shelves you are unsuccessful, so you find an associate.

You: “Where can I find such and such item?”

Associate: (pointing in the opposite direction of where you looked) “It is way over there at the other end of the store on aisle 128.” 

You turn to look for said aisle and the associate magically disappears. While mildly frustrating in a department store, the problem of “not-in-my-department” can become a major issue when dealing with your plan provider. When our plan sponsors are forced to call their 401(k) provider, they often tell us that different questions must be outsourced to different departments such as testing, administration, or participant services; rarely, if ever, can one person answer their question. If you have ever played the game “Telephone” you know that repeating a statement over and over again to different people often leads to dilution or confusion of the original statement. Funny when playing the game, frustrating when trying to get important questions about your plan answered.

Lack of In-Depth Knowledge
“Jack of all trades, master of none” comes to mind when assessing the roles of relationship managers in the one-stop-shop provider model. It’s easy to understand how this can happen; an individual can only be responsible for knowing so much about any one subject and even less about multiple subjects. Case in point, I recently had a back and forth exchange with a relationship manager about vesting. While vesting is not the most complex issue facing plan sponsors, if not administered correctly, it can become a nightmare. This particular issue concerned the actual versus equivalency method and how hours are counted under each. My plan sponsor indicated during the conversion process that she had uploaded hours for vesting using the actual method, when her plan document indicated that the equivalency method should be used. The plan provider confirmed that the method was not correct. It was not until my team stepped in and reviewed the vesting that we found the error and then took the appropriate steps to make the necessary corrections. Fortunately, the error was caught early enough in the process that the issue did not snowball out of control.

The “Alexa” of Advisors
With fewer and fewer provider options to choose from and more and more services being offered by each, how is a plan sponsor to make sense of it all? Our solution? We aim to be the at-home-assistant to our plan sponsors.

Plan sponsor: “Grinkmeyer Leonard Financial, what is my plan vesting?”

Grinkmeyer Leonard Financial: “Your plan uses the equivalency method for calculating vesting which means your participant is credited for 190 hours worked for every month they work at least 1 hour in that month.” 

Plan sponsor: “Grinkmeyer Leonard Financial, how do I help get my participants ready to retire?” Grinkmeyer Leonard Financial: “Let us to hold one-on-one meetings with your participants where we can educate them on a variety of financial matters.”

We serve as the single point of contact for our plan sponsors; helping them navigate the relationship with their providers and manage their plan efficiently and compliantly. By bringing the focus back to our individual plan sponsor’s needs and concerns, we are bringing back the customized, personalized boutique-style approach to relationship management; where you are not helplessly bring passed from one person to another or pointed from one department to the next.

If you would like to learn more about how Grinkmeyer Leonard Financial can help you make a decision when it comes to analyzing your options between different 401(k) providers, please email jamie@grinkmeyerleonard.com or call 205-970-9088.

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