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The problem with TPA referrals

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A friend of mine and I were talking about a financial advisor that we knew that had a tremendous and respectable book of 401(k) business and how he uses a well known and ineffective third-party administrator (TPA) for many of his client’s plans.

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 the Mid-South who brought a certain TPA I know quite a few cases. They did a particularly poor job of administering the plan and the client was interested in adding an employee stock ownership provision to the 401(k) plan that people call a 401(k)SOP. The TPA didn’t have an idea what a  401(k)SOP was, and 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 do not 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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