The Concern of TPA Referrals Made By Advisors

A friend of mine and I were talking about a financial advisor that we knew that had a big book of 401(k) business and how he actually uses a payroll provider for the third party administrator (TPA) for many of his client’s plans.

As many of you, I have a bias against payroll provider TPAs because I think they do a poor job of what they’re supposed to do, actual administration. Regardless of my bias, I believe that a financial advisor with a book of business should always consider the TPA they refer business to because I believe that more clients leave a financial advisor over the terrible job that a TPA did that the advisor recommended than on the actual performance of the financial advisor.

I always point as an example of an excellent financial advisor from who brought a TPA I knew quite a few cases. They did a particular poor job of administering the plan and the client was interested into adding an employee stock ownership provision to the 401(k) plan that people call a 401(k)SOP. Rather than sending an actual ERISA attorney who understand the mechanics of the Plan, they sent a representative who did such a poor job of presenting the concept of the 401(k)SOP that not only did the TPA lose the client, but so did this terrific advisor. There can be a high price for a referral made.

Referrals are an important part of the 401(k) plan business and I have been a fortunate recipient of referrals from TPAs and financial advisors nationally and it is incumbent on me to do my best because I want to do the best job possible (as a professional) and I don’t want to disappoint the people that have referred me business.

A financial advisor should consider the TPA referral they make. Price should never be the only factor because with most TPAs, you do get what you pay for and a financial advisor should only use a few TPAs because one TPA can’t handle all different types of retirement plans for all different sizes. A TPA is like clothing, it has to be a proper fit for the client and financial advisor because if it doesn’t fit, the financial advisor will get quite a bit of the blame.

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