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.


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.

Read the full article at this link.

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