Posted on Feb 2, 2018
Advisors and plan sponsors benchmark plan fees, nvestments and other services that can be provided by a record keeping platform, but rarely have I encountered a full and proper due diligence review process of a third party administration (TPA) firm.
In many circumstances, the TPA selection is based less on quality, credentials and certification than on a basic comparison of cost for administration services. When considering the significance of the risk mitigation and operational compliance oversight needed to support plan fiduciaries, this seems like a severely flawed strategy for selecting a TPA.
Over the years, I have concluded that there are two primarily drivers of this state of affairs:
1) There really is no easy-to-use due diligence tool for validating the depth and scope of a TPA.
2) Advisors and recordkeepers have not been properly educated on how to vet the quality and capabilities of a TPA, so the perception is: "They all do compliance testing, prepare 5500s and provide a plan document, so they are all pretty much the same, right?"
I find the second item particularly frustrating from a TPA's perspective, because not "all TPAs" are the same, just as not "all retirement plan advisors" are the same. It also reminds me of an Ary Rosenbaum article from a few years back in which he observed that, "You need a license to practice law to be an ERISA attorney; you need to be a CPA to be a retirement plan auditor; you need a securities license to be a financial advisor; but anyone can put out a shingle and call themselves a TPA."
That comment may be a little sarcastic and tongue-in-cheek in nature, but it is not really that far offbase. This is why basing the engagement of a TPA primarily on price is a serious disservice and potentially a disastrous decision for plan sponsors, especially without knowing what you are really buying.
Better-informed decisions on TPA selection and engagement could be made if there were some type of Consumer Reports-style "Best Buy'' rating for TPAs, or a Good Housekeeping "Seal of Approval" to help confirm a TPA's "Alpha status" over its competitors... essentially indicating to advisors and plan sponsors, "Yes, this TPA is a prudent choice."
Well, the good news is that there is an independent "Seal of Approval" for TPAs-it's called CEFEX Certification.
WHAT IS CEFEX CERTIFICATION?
The ASPPA Certification for Service Provider Excellence was developed to recognize firms providing administration services to retirement plans that adhere to a standard of excellence and a dedication to best practices. The program incorporates annual certification renewal audits conducted by independent expert analysts to continually verify adherence to applicable standards developed under the CEFEX Certification program.
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