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It’s A Matter Of Choice

By: Hugh Mowat

The continued merger of the banks and large insurance companies, supposedly to enable them to provide the latest in technology to serve their clients better, often means small plan sponsors end up facing big bills. Hugh Mowat, of The Recordkeeper, offers unbundling of services as a solution.

Does anyone remember the days of trust companies, banks, insurance companies, consultants, brokerage firms, and investment management firms when we had lots of choice? Do you remember the last time a ‘client service officer’ came to see you?

In an effort to provide the marketplace with better more sophisticated products at less cost, there has been a continuing blur of merger and acquisition activity – trust companies buying each other or consolidating, banks buying trust companies, insurance companies buying insurance companies – leaving clients to wonder when it is all going to end. Part of the rationale is that with more assets and better technology the transactional basis of the business will prove to be less costly for the client. Hogwash!

During this same period we lost the ability to provide both alternative solutions and a level of service that used to be the norm in the industry. By level of service, I mean the human interaction on a face-to-face basis that seems to have taken a backseat.

Now everything is ‘online,’ call centre,’ ‘self-serve,’ ‘e-mail,’ and our favourite – ‘voice mail.’ How nice it would be to call and actually have someone answer the phone! That’s probably because everyone is too busy responding to emails and or picking up their voice mail. By the end of the day, they’re just too tired to respond.

The other day someone said to me that there were no alternatives to the bundled service providers for pension plans, group RRSPs, and other Defined Contribution plans. And what about the small client who has chosen to stay with their DB pension plan?

These clients are particularly vulnerable to cost increases. With the large consulting houses focusing more and more on their global relationships, as they should be, where can you turn? It is no secret that the small client gets moved farther and farther down the priority list. I, of course, reminded him that, in fact, there are alternatives which are both cost efficient and provide a very good alternative to the bundled service approach. It’s called unbundling!

Bundled Approach

The bundled approach, typically sold by the insurance industry, offers an all-in-one solution – trustee/custodian/contract, member administration, investment management, education, and self-serve options. The pricing of these plans can vary substantially depending on such factors as investment selection (internal funds versus externally managed funds). That said, it does not fit all plan sponsors needs. Some might wish a little more flexibility in how they invest and administer their plans. They may also be very interested in how their fees are broken down. What am I really getting for my dollar?

The point is there are choices and people need to be aware of them. The problem is, as this merger and acquisition activity continued, plan sponsors were squeezed into an ever tightening funnel which led in only one direction – into the insurance industry solution of the all-in-one package.

This may not be all bad. The insurance companies have spent large amounts of money on technology and resources to serve the needs of their clients.

But technology is only part of the solution. People like to know that the person( s) handling their affairs have a full knowledge of what their plan is about. They want and deserve professional investment advice. They like to develop a relationship with the people that are looking after them. Part of this problem is created by the constant change of personnel. All of the large institutions face this problem in varying degrees and for very different reasons.

Unbundled Approach

That said, for the small and mid-size company the unbundling of services is a very good alternative. For example:

Under the scenario of unbundled services you get to choose the best suppliers to meet your specific requirements. The added advantage is that you can terminate or change those suppliers without having to move all of the pieces wholesale to someone else’s platform or investment product. You can leave your employee records in one place while changing the investment manager, consultant, or custodian.

The key to all of this is ensuring that you control this very important employee benefit as opposed to shuffling all the responsibility and cost to the employee. To be quite candid, when you do that, I do not believe you are providing a real benefit. Rather you are providing a benefit with the optics of being a caring and enlightened employer. If you want to off-load all the responsibility, why not just send your employees out to some financial institution to set up an individual RRSP? Employees are not transactions!

In the past, you were able to pick up the phone and call any number of providers and get your needs resolved. Today, you still can with smaller consulting firms, independent actuaries, investment managers, custodians, and plan administrators. The fact is, that with all that has been going on in the industry, there are more and more individuals and small firms with vast experience available to help you with your benefits program.

And there is a very large network of these resources who meet and talk to each other on a regular basis. Let’s stop thinking big is beautiful!

So, where does this leave us?

Unbundling is an alternative.

It is time to stop and think about what you need to do to really provide a solid retirement program. Look at some of the following issues and be sure to think far ahead, because it will not be until your employees start to retire that you will discover that time spent early on will save you terrible grief down the road. Some things to think about:

Advice and plan design to meet your needs. There is an association of independent actuaries, small consulting firms, and individuals all of whom have the knowledge and experience to find the right solution, whether it be a pension plan, GRRSP, DPSP, or a combination MPPP/Savings plan. Just go to the August issue of this magazine to start looking for them.

There are some very good independent firms that specialize in designing and monitoring the compliance issues particular to your needs.

Whether you are large or small you do have choices. In my company, we have built our business on the theory that there are always going to be plans that do not fit in the box. Let’s be honest – one cannot be all things to all people.

It is your choice. Something to think about!

Hugh Mowat is president of The Recordkeeper Ltd.

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