The $80 million Royal Alliance firm had help from Loring Ward's new 401(k) platform -- and a fiduciary crusader

February 17, 2011 — 6:55 AM UTC by Elizabeth MacBride


Scott Thomas and Todd McChesney were thrilled when their long-time TAMP, Loring Ward, began offering them an easier way to advise retirement plans — and that was before they went to war for an account against John Hancock and won.

The partners at Ashworth & Empey, a Royal Alliance advisory with about $80 million of AUM, had always done some retirement plan business for their clients who are entrepreneurs. But they never saw a way to scale up or offer the Dimensional Fund Advisors mutual funds that they used extensively in their main practice. When Loring Ward rolled out a 401(k) TAMP offering last year, Ashworth & Empey was among the first firms to sign up.

Then, before they were even finished moving their retirement business onto the new platform, they found themselves in a head-to-head contest against John Hancock. To win the retirement plan business of a long-time client, they needed to prove that their package was less expensive than Hancock’s. That was a task that turned out to be much harder than it looked. See: RIAs are starting to create their own 401(k) companies as alternatives to John Hancock and The Principal

“We had no idea,” Thomas said. “It is darned near impossible to really understand what the true fees are (in group annuity contracts).”

Enter the TAMPs

More advisors than ever are wading into the thicket of retirement plan market. In part, they’re walking through doors opened by TAMPs such as Loring Ward, which are offering turnkey retirement services to advisors, who in turn sell the packages to their clients. Advisors don’t need to build out the recordkeeping, investment management and compliance infrastructure. (See: Buckingham expedites turnkey 401(k) strategy by buying a fellow DFA TAMP).

Loring Ward got a leg up into the retirement market last May when it purchased an already existing TAMP, Tribeca. Its CEO, Karl Huish, became Loring Ward’s chief retirement strategist.

Loring Ward rolled out Total Retirement in the second quarter of last year and has so far won 150 advisor-clients. The 401(k) plan is being marketed to Loring Ward’s 800 TAMP clients, which tend to be broker-dealer representatives, as well as RIAs and broker-dealer reps outside of Loring Ward. Loring Ward has $6 billion of AUM in DFA’s passively invested mutual funds. (See: Dimensional Fund Advisors still has low RIA acceptance rate and stunning growth.)

For about 100 basis points, San Jose, Calif.,-based Loring Ward’s case offers the following services:

• Custodian
• Record Keeper
• Third Party Administrator
• Portfolio Manager
• ERISA 3(38) Fiduciary
• Marketing materials and support
• Meeting materials and support
• Integrated video education tools for participants
• Back office servicing

Exact fees will vary, but Loring Ward offered two sample pricing scenarios:

For a $2mm plan with 10 participants, the total would be about 0.90 (not including the advisory fee). For a $20mm plan with 100 participants, the total would be about 0.73% (not including the advisory fee).

One of the big advantages of a 401(k) TAMP – from an advisor’s perspective – is that they take the fiduciary liability off a plan sponsor’s shoulder’s without putting it on the advisor’s. In Loring Ward’s offering, Loring Ward is what’s known as a 3(38) fiduciary, which means that it takes on the 3(38) fiduciary liability from the employer or plan sponsor.

If the market crashes, for instance, Loring Ward will step in to prove that the investments were prudent. The advisor, meanwhile, still has a fiduciary duty to act in the best interest of the plan. (See: 7 things a financial advisor needs to know to succeed in the 401(k) business)

It remains to be seen whether the new 401(k) TAMPs can win in the market– which is in the midst of a major upheaval now, as the Department of Labor tries to bring transparency to a retirement plan world that’s been notorious for hidden fees. With fees that typically total 1.5-2% when the advisor fee is added, the TAMPs probably are most competitive for plans with less than $5 million in assets.

See: Why the DOL’s massive new 401(k) disclosure requirements are a 'very, very big deal’.

Huish says he’s confident that Loring Ward’s platform will win out in head-to-head contests, at least for small plans.

“This was a segment of the market that needed a lot of things,” he says. “They are getting very expensive, bundled insurance products.”

Who was lying through their teeth?

Explaining to clients that their plan is expensive and bundled is not always easy, however, which is why when Scott Thomas got the phone call from a long-standing client, he knew he was in for a fight. Unbeknownst to Thomas, his client had put the Thomas’ proposal using Loring Ward’s Total Retirement up against a competing proposal from the local John Hancock broker.

Looking over the paperwork from Thomas and the broker, the client believed that the John Hancock plan was less expensive.

“You and I have worked together for a long time,” Thomas told his client. “Just give me a half-an-hour. I promise you, it’s not even close.”

Using Loring Ward Total Retirement, Ashworth & Empey’s fees to plan sponsors are equal or less than 1.6%, McChesney said.

Thomas put all his ducks in a row, so that he could demonstrate to the client that there were fees in the competing proposal that the client didn’t know about, and that group annuity contract fees are often upwards of 3%. He even reached out to fiduciary expert Matt Hutcheson, who, along with serving as an independent fiduciary himself, also offers a platform to help advisors and other professionals work with plans. Here’s a link to his web site:

“You don’t know me from Adam, but I’m going up against one of the group annuity contracts,” Thomas said to Hutcheson.

“Matt walked me through every single fee, how they found it, where it’s at.”

Financial junk food

Hutcheson, who has made something of a crusade out of exposing hidden fees in retirement plans, even reached out to the client to confirm that most group variable contracts have an all-in structure of 3% plus. He told the client they should be viewed as “financial junk food.”

John Hancock did not respond to a request for comment.

(Here is a link to Hutcheson’s white paper, which outlines retirement plan fees:

Thomas was never able to demonstrate exactly what the fees were in the Hancock plan, but it was enough to convince the client that he wasn’t getting the whole story from the broker involved.

“My client said, Scott, either you’re lying through your teeth, or he is,” Thomas remembers the client saying.

The client opted to hire Ashworth & Empey to manage his retirement plan assets, which they do on the Loring Ward 401(k) TAMP platform.

The partners are hiring another advisor to focus on their 401(k) business and hope to more than double the assets managed from $8-$9 million over the next year. Thomas says he’s amazed at what he’s learned over the past year – and that he plans to continue going up against the group annuity providers – and winning.

An earlier version of this story contained a quotation that may have implied that John Hancock’s pricing was deceitful. Thomas was referring to a broker, not the company.

Mentioned in this article:

Royal Alliance
RIA-Friendly Broker-Dealer
Top Executive: Art Tambaro

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