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Revamping our practice’s 401K profit sharing - Limited service financial advisor

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  • Hank
    replied
    This is a year and a half old thread. The original poster only posted over the course of two days, most recently in April, 2019. Thread closed.

    Leave a comment:


  • litovskyassetmanagement
    replied
    Originally posted by Teancum76 View Post
    Hi White Coat Investors

    Question for all the smart ones out there. I am currently in the process of revamping our practice’s 401k profit sharing plan.

    We are in Texas. We have 48 employees, 9 providers, 3 of the 9 providers are partners in the practice. We are looking at switching investment platforms from a high fee/expense ratio platform to a lower cost platform like Employee Fiduciary or Vanguard (unbundled). We are comfortable selecting our own mutual fund line up and we will choose a select number of Vanguard funds that mimic the Thrift Savings Plan funds. We will keep our local TPA as their fees are reasonable and they do a good job with new comparability cross testing and have kept us out of trouble there. We have not had a financial advisor for either 3 (38) or 3 (21) fiduciary services to try to save costs.

    Some of the employees have been asking for some financial advisor services to help them pick their fund mix. We were leaning toward NOT hiring a financial advisor. I know this comment may generate some controversy, but we have done our due diligence and we understand the we do not have to have a 3(21) or 3(38) financial advisor. So I am not looking to hear from anyone out there about why we are putting ourselves at liability risk by not having one on this post.

    IF we hire an advisor we basically want to hire the adviser to only assist the employees in selecting the funds from the available choices and possibly to provide educational seminars to the employees.

    I’m having a hard time finding an advisor that will do just that and only that. Anyone know of any good options for that type of service with reasonable low costs?

    Thanks in advance!
    I realize this is an old thread, but I believe some of the answers below might be helpful to others in this situation.

    1) EF is not a platform I would typically use, I prefer Vanguard/Ascensus because they have no AUM fees. I would say that if you have $3M or more in assets, Vanguard/Ascensus will be cheaper long term. This would work if you use their record-keeper only platform and use your local TPA.

    2) As far as employees asking for help with asset allocation, this can be achieved in different ways. First, an enrollment meeting to go over the investments is a good idea. However don't expect them to understand much if anything. Second, a QDIA (qualified default investment alternative) option is also a good idea so that those who don't make an election are placed in a default portfolio/allocation. If you have only a set of discreet investments, this will make it quite difficult for your employees do build portfolios. So as a fiduciary, you would definitely need to teach them or provide individualized advice. This will cost money for sure since you would need to hire someone on an ongoing basis. Someone also has to build several managed portfolios and make one into a QDIA, as well as to educate employees on how to pick the right one. Some plans use TDFs and make those into a QDIA, that's also an option.

    3) Most employees don't really care for seminars/education in my experience, and just want to be pointed in the right direction once. Additionally, most advisers charge AUM fees, so it would be difficult to find someone to do just the part you'd like them to do.

    4) There are services out there that provide 3(21) advice to participants with access to CFPs over the phone, but they are definitely not cheap. I found that because most participants don't use them, they are a waste of money for most plans. So bottom line is that you need to either do everything yourself as described above, hire an adviser to do everything for you, or do some of it yourself and hire out the rest to a firm providing participant advice/or an adviser. There is no guarantee that an adviser who does everything will be more expensive than the 3(21) participant education provider, but you can try to hire a fixed fee ERISA 3(21) adviser to provide advice/seminars to participants and manage investments as a plan sponsor. I don't know whether you will find this limited ERISA 3(21) adviser, but who knows.

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  • Teancum76
    replied




    I guess I’m not understanding why you are paying for duplication of services. You have an independent TPA providing administrative services (including cross-testing), and document services. You would also be paying Vanguard/Ascensus and Employee Fiduciary for TPA services (I guess less cross-testing). So are you just using their trustee, custodial and record keeping services. Whose plan document are you going to use and who is providing plan administrative and compliance.

    I hope Kon stops by, because this makes no sense to me. If you have a TPA providing at least what you have indicated. They should be able to contract for open platform trustee, custodial, record keeping services without the duplication of effort and cost of using another TPA.
    Click to expand...


    Thanks spiritrider for your response.  First, the excel spreadsheet I posted shows a vanguard unbundled platform (NO ascensus) so there isn't duplicity there with the local TPA and that option.  Yes, you are correct that there would be duplicity of services between our local TPA and EF (Employee Fiduciary) with the EF option and yes, I was aware of that.  But, as you can see, the EF option is still less expensive in total even with the duplicity of services until the plan assets get over 4.1 million. That is the breakeven point with the vanguard unbundled option without the duplicity of services. Also, I should mention, that our local TPA, although they are not an Erisa 3(38) or 3(21) fiduciary for us, they do have an actuary on staff that has ERISA fiduciary experience from a prior job.  That individual has helped me run combined testing with the a cash balance plan added to see the effects on employer contributions. We looked at DC (defined contribution) and DB (defined benefit) contributions to make sure they pass the deductibility testing with that plan design. We have looked at other plan designs with and without a cash balance plan. Basically, we are doing what we would pay an ERISA fiduciary to do for us. Another reason that we would keep our local TPA is that they have done well with the cross testing (new comparability plan) on the employer contributions with our profit sharing 401k in the past even with our few HCEs.  Several recent bloggers on bogleheads have reported problems with EF recently especially with cross testing, another reason to keep the local TPA despite the duplicity of services. Here is one example of several from Bogleheads:

    https://www.bogleheads.org/forum/viewtopic.php?t=244838

    I think my feelings echo the feelings of this prior whitecoatinvestor blogger:

    https://www.whitecoatinvestor.com/forums/topic/help-vanguard-401k-for-small-business-do-i-need-a-401k-advisor/

    I have a feeling I already know what Kon would say to this post and, at this point, I am starting to feel like just giving in and hiring an ERISA Fiduciary advisor.  So, if any of you like your current ERISA Fiduciary advisor (ie the folks with all the letters behind their names like AIF, CPFA CEBS, etc), and feel they have reasonable fees, I would entertain your recommendations and would love to hear how much it costs you. Also, if any of you have any other ideas on a custodian for our plan other than what is mentioned above, again, I am all ears.

    Finally, in an effort to maintain full transparency on this blog, here is what Physicians Capital Managment LLC sent to me as a private message:



    I did the same thing for our group (nephrology) about 14 years ago. I can guide you here if want. Basically, what you want is a "Do it Yourself" approach to this. I can coach you on what needs to be done. I might charge something like $4000 to educate you what needs to be done. I would not be a recurring fee because you won't need my services after one year. I am a nephrologist and financial adviser.

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  • jacoavlu
    replied




    I will private message you.  You are on the right track!
    Click to expand...


    If you have thoughts could you provide them? The discussion is always beneficial for folks reading the thread.

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  • Physicians Capital Management LLC
    replied
    I will private message you.  You are on the right track!

    Leave a comment:


  • spiritrider
    replied
    I guess I'm not understanding why you are paying for duplication of services. You have an independent TPA providing administrative services (including cross-testing), and document services. You would also be paying Vanguard/Ascensus and Employee Fiduciary for TPA services (I guess less cross-testing). So are you just using their trustee, custodial and record keeping services. Whose plan document are you going to use and who is providing plan administrative and compliance.

    I hope Kon stops by, because this makes no sense to me. If you have a TPA providing at least what you have indicated. They should be able to contract for open platform trustee, custodial, record keeping services without the duplication of effort and cost of using another TPA.

    Leave a comment:


  • Teancum76
    replied
    Yes, we have looked at plan designs with and without cash balance plan and how they impact employer contributions and with different scenarios. There are pros and cons to each plan design as you know. I didn’t want to post those details as to remain somewhat anonymous and keep my partners financials private but we have that. I appreciate you taking a look and please let me know if you have any other words of wisdom or caution

    Leave a comment:


  • jacoavlu
    replied
    Are you doing profit sharing? I assume so because you mentioned new comparability testing.

    I don’t see anything in your spreadsheet about plan design. Perhaps you’ve already gone through that and you’re confident that the plan design you have now with new comparability testing is ideal.

    But if you’re overhauling the plan and haven’t had various plan designs laid out and compared as to your cost of employer contributions, now would be the time to do so. Particularly if you’re considering adding a cash balance plan.

    Leave a comment:


  • Teancum76
    replied
    Thanks for all the responses thus far to my question.  Attached is an excel spreadsheet I put together that compares some of the different investment platforms we are looking at. The plan is to show this to the other partners in the practice and to the practice administration to help them see the difference in fees between the different platforms.

    Leave a comment:


  • Tim
    replied
    “We have 48 employees”
    Let’s say 1hr/year/employee, just a thumbnail rough time commitment. How much do you think is reasonable? The point is the commitment is variable for the FA or CFP but the reimbursement is fixed.
    That’s $20/hr. The problem with fiduciary is the investment must be appropriate for the individual. Not worth it for the fiduciary.
    A 1 or 2 hr presentation might be had for $1-$2k.

    Leave a comment:


  • Teancum76
    replied
    Thanks for your comments. I think that is a direction we will look into. And you are right, I’m sure the employees would see that as a huge employee benefit. There is probably a hidden benefit there with employee loyalty, job satisfaction, retention. Hard to calculate the value added with that when looking at the cost of that type of service

    Leave a comment:


  • spiritrider
    replied
    The reason you are finding it hard to find an "advisor" for such a low cost plan, is because they will not be making any money from commissions and/or AUM fees.

    What you might want to be looking for is a fee-ONLY Certified Financial Planner. I worked at couple of small companies that provided a fully subsidized CFP during on-bording and change of plan provider. I might have had something to do with that.

    The cost wasn't insignificant, but It was one of the more popular benefits provided. I was told by more than one employee that they always felt terrified and paralyzed whenever they had to select 401k investment options

    Leave a comment:


  • Teancum76
    replied
    Yes jacoavlu, that’s the kind of response to the question I was anticipating. I think White.beard.doc’s comment gives some good food for thought.

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  • White.Beard.Doc
    replied
    We were in a very similar situation. We like our TPA, who is cost effective. We got bids from several different platform and record keeping providers. We took our time and ended up with a company we never expected to use. We also chose not to have fiduciary services.

    Our TPA remains the same, very reasonable cost paid by the practice. If I remember correctly, around 5k/year for a growing plan with over 10MM in assets.

    Funds are all vanguard, fees run less than 10bps on average for plan participants.

    Record keeper, surprise, surprise, is Voya. We offer no Voya funds, only Vanguard funds. Voya does record keeping for around 10k per year. The practice decided to pay the record keeper and the TPA, so all of the employees on average pay less than 10 bps for fund fees only.

    How we dealt with the issue of non-sophisticated investors was to make the age appropriate target date fund the automatic default option. If desired, you can opt out of the target date retirement fund and mix and match on your own, and you can participate in the Voya webinars to guide your investment choices if you wish.

    We switched about a year ago and we feel we have an outstanding safe harbor/401k/profit sharing plan.

    Leave a comment:


  • jacoavlu
    replied
    Advising the employees yourself in this capacity is a terrible idea. You’re better off doing nothing.

    I really doubt you’re going to get a quality FA in the door for $1-2k per year. Not worth their time. I’m not sure what you think you’re going to get for that amount. Certainly not any one on one time for employees.

    Leave a comment:

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