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The good guys can say no

I always believe that regardless of whether it’s business or regular day-to-day life, you can’t be everything for everybody. Being honest with that is only half the battle.

Years ago, I met someone who was interested in starting a registered investment advisory (RIA) firm. He called me for my insight on the retirement plan business, as well as my work in drafting advisory agreements for RIA firms and their retirement plan clients to comply with the fee disclosure regulations. The next week or so, he called me and asked whether I could work on his RIA registration or whether he should use one of those businesses that only deal with RIA setups and registration. Looking at my experience in doing that and comparing myself to these businesses, I politely told him that these firms would be a better fit for his RIA registration. It’s not that I couldn’t do the work; it’s just that the fees and length of time in doing the work are probably better by using a business that does nothing but RIA registrations. Perhaps this new RIA will be a client of mine, perhaps not, but he appreciated my honesty. Again, you can’t be everything for everybody.

I have a friend of mine who works for a great third-party administration (TPA) firm in the Northeast. Only problem is that when it comes to smaller plans, the fees are high. Nothing wrong with that, except if you are a smaller plan and were dead set on getting this TPA to handle your plan. Anyway, this salesperson met one of the accountants he was familiar with. The accountant had a lot of opportunities in single-employee, defined benefit plans. With a $4,000 minimum for the actuarial work, the salesperson told the accountant that they were better off finding another firm for these plans at less than half what his minimum fee was. Again, you can’t be everything for everybody.

Contrast this with a case at my old TPA. We had a 401(k) plan where the human resources director hated us from day one because we wouldn’t do the work she received from the previous TPA she liked. She was a problem from Day 1, but we took the case because we had a great relationship with a southern RIA firm. So this client was a problem from Day 1, but they seemed to be interested in changing the plan by making it a K-SOP, basically adding an employer stock ownership feature (ESOP) to it. The client’s advisors asked me about our experience with it and I was honest, I said we had a couple of those cases. My boss who was an ERISA attorney, but didn’t practice since the Ronald Reagan administration, knew better. He flew out to meet the client and since he always knew better (since he thought I couldn’t speak or sell), he was going to educate the client on K-SOP even though he knew nothing on the topic. Story cut short, my boss’ lack of knowledge was exposed, and not only did we lose the client, but the RIA who referred us to the client also lost the client as well.

Regardless of whether it’s a TPA, RIA, or an ERISA attorney, you know you found an honest provider when they basically tell you that they can’t handle your plan because the plan is not a right fit for their book of business. These are providers who are telling you that one of their competitors is a bigger fit because they would rather you go somewhere else and be happy because it would be good for you and good for them.

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