As small- to mid-size defined contribution plan sponsors wake up moving from being unconsciously incompetent to consciously incompetent on the road to becoming consciously competent, finding service people and organizations they trust becomes critical.
These plan sponsors are in difficult positions, most thrown into their jobs with little to no training and limited resources still grappling to understand the roles and responsibilities of advisors, record keepers, TPAs and fund companies. In this phase of their awakening, the focus is on partners’ competence and knowledge but as they get more aware and comfortable, they will be asking, “Who can I trust?”
Trust is built on facts but ultimately becomes an emotional response. In the seminal book, The Power of Trust: How Companies Build It, Lose It, Regain It authors Sandra Sucher and Salene Gupta write, “To trust fundamentally means to make yourself vulnerable to the actions of others. We trust because we believe they will do right by us…trusting they will not abuse this power.” It can take years to build trust and moments to lose it, taking even longer to regain it.
The entire concept of DC plans is based on trust—starting with banks acting as trustees and custodians. Employees trust their employer will take care of their retirement savings, while the company entrusts record keepers, custodians and money manager overseen by co-fiduciary advisors and consultants, to do the work. There are strict laws under ERISA, which carry the highest fiduciary liability known to law in the world, governing all these parties, which starts with the plan sponsors.
Having personally conducted hundreds of half-day training programs for plan sponsors, I feel the immense pressure they are under, including:
- Am I doing the right thing by my employees?
- Will I lose my job if I do not perform these duties correctly?
- Who can I trust to help me, my employees and organization?
Trust is a rare commodity these days as politicians are casting serious doubt on the election process for the first time I can remember, there is more concern than ever about the media not just because of the proliferation of unsupervised social media but because powerful people are labeling what they do not like as “fake news,” and AI can create realistic deep fake photos and videos. As more of our data is available, it makes us more vulnerable to hacks and abuses.
DC plan sponsors have a right to be skeptical about our industry with fees mostly hidden within revenue sharing, not to mention unreported platform fees paid by fund companies to record keepers and advisors to gain advantageous positions. There are 408(b)(2) and 404(a)(5) fee disclosure forms that go mostly unread and misunderstood. There’s a reason that just 15% of larger plans use revenue sharing, according to a recent Callan study.
Though DC insiders rail against lawsuits, there were real abuses that these actions remedied making plans more mindful. And when trust is lost or nonexistent, we turn to more laws and regulations with agendas set by politicians and lobbyists rather than stake holders.
The convergence of wealth and retirement at work as well as fee pressure can worsen matters as advisors and record keepers search for ways to generate revenue, which may not be in the best interests of plans and their participants, possibly leading to abuses of data.
In what has become an overly litigious world with a growing number of laws and rules, trust becomes essential. And the most important player, especially for smaller and mid-size plans, is their retirement plan advisor. If plans truly believe their RPA is looking out for them, their employees and their companies putting their interests above their own, there is no limit to where these relationships can lead, which will fuel the convergence for the benefit of everyone.
How do you build trust? Do trustworthy things. How do you lose it? Put your interests ahead of others you are pledged to protect and serve.
Because when trust is lost or does not exist, we rely on rules. When rules are not followed, we turn to litigation. When all else fails, the government will take over and nationalize the DC system and we will have only ourselves to blame.
Fred Barstein is founder and CEO of TRAU, TPSU and 401kTV.