What to Do When Your Plan’s Record Keeper or Advisor is Acquired

At a recent TPSU program, a plan sponsor relayed issues she is having as a result of her record keeper being acquired. Even though she conducted thorough due diligence on the new provider, a well-known record keeper part of the Fab Five with more than adequate resources and technology, she is still experiencing problems.

The issues stem from the fact that her service team at the old record keeper who intended to stay on after the acquisition eventually left. The plan sponsor was left to fend for themselves assigned to a new team trying to navigate new systems and procedures. Yet as unhappy as she is, she is reluctant to change providers, again, as it might cause disruption for the employees.

At the same time, another plan sponsor attending the TPSU program using the acquiring provider was very happy as that record keeper helped her company go through and acquisition themselves and significant downsizing.

A cautionary tale indeed as more record keeping consolidation is expected with 44 national providers while only five have significant scale with more than 10 million participants.

All of which raises the question of whether plan sponsors should be conducting a written due diligence process and RFP when their retirement plan advisor is acquired which is happening more frequently as that industry consolidates.

Even if the principal RPA remains at the new firm, more likely than not some aspect of the service model will change as well as the support people and technology. There may be new pricing and new services offered that the plan may or may not want while other services may be discontinued. The question is not whether the new relationship is as good as or better, the question is whether it is different and appropriate for the plan and the participants.

Because all ERISA plans must conduct prudent documented due diligence periodically but especially when their service provider or advisor is acquired if they are paid out of plan assets. Even if paid directly, it would be a prudent business practice.

Just as it is not acceptable for plan to accept a record keeper’s proprietary target date fund without prudent documented due diligence, a plan cannot accept a new provider or advisor relationship without the same prudent process.

The problem for plans when their advisor is acquired or even changes firm, broker deal or RIA is who will help them conduct the due diligence as a prudent expert? Advisors can help with record keepers, money managers and even third party administrators when they are acquired, but just like with the required RPA periodic due diligence and RFP, the advisor cannot conduct an unbiased review of themselves or their new firm.

Even with the proper due diligence, unanticipated changes can occur as was the case with the plan sponsor attending the TPSU program. Her service team which intended to stay post sale ended up leaving which is more than likely with any sale. The same situation can happen with advisory firms and, even if the main RPA stays for a period of time because of an earnout, their service team or the service model may change.

So while there is no way to predict what will happen, the prudent path for any plan sponsor whose service provider is acquired is to conduct a thorough and prudent due diligence process getting bids from other firms as well as service guarantees and price quotes even from the acquiring firm.