In a world in the not too distant past, businesses of all shapes and sizes went to a single vendor for retirement plan services.

This vendor offered all the plan design elements, advised on investments, and kept track of all employee data. Long before “Madoff” the more sophisticated plan sponsors recognized the inherent liability of relying on only one source for all retirement plan services.

Read: Broker-dealer advisors at historic crossroads

Corporations that could afford to brought some of these services in house. Others began delegating services to individual vendors.

Today, it’s very rare to see a company with, say, more than 100 employees, limit themselves to a single bundled service provider.

The same cannot be said for small companies.

There exists an often confusing array of retirement plan choices for small business owners (see “Retirement Plan Options for Small Business Owners,” FiduciaryNews.com, March 1, 2016).

Read: Where DOL fiduciary rule stands now

As you might expect from any extremely busy person, the opportunity to reduce the amount of time and energy devoted to making decisions represents an attractive lure for this particular class of plan sponsors.

Not only do bundled service providers have a shot at this market, but, as of now, this is their primary market. Large companies cannot afford the increased liability that comes from the lack of a “second opinion” and functional redundancy presented by hiring a single bundled provider.

Smaller businesses, on the other hand, cannot afford the cost in both time and money generally associated with operating under a best practices model that avoids the worst of and most damaging conflicts-of-interest.

Ironically, it is this desire to cut corners – and the willingness of certain business models within the retirement plan industry to accommodate these unwise short-cuts – that has placed increasing competitive pressure on those service providers who see the ethical high ground in separate different plan duties.

This is why, for all its short-comings (and there are plenty), the DOL’s new Fiduciary Rule may end up being worth the cost it will bring.

By specifically eliminating conflicts-of-interest (that is, after all, its rebranded name), the DOL effectively ends the potential problem with one-stop shopping.

The DOL could go one step further and prohibit all investment advisers from offering the legal and tax advice necessary to make the decision regarding how to establish a retirement plan.

Leave that to the ERISA attorneys and the CPAs. Likewise, the DOL could then prohibit lawyers and accountants from having anything to do with the provision of investment advice. In a similar vein, let the recordkeepers alone to be the recordkeepers, but don’t permit them to enter the world of tax, legal, and investment advising.

Read: DOL says insurance industry exaggerates impact of fiduciary rule

It is well understood that tax considerations represent the primary impetus for the adoption of a retirement plan, especially when it comes to small business owners.

Indeed, although a retirement plan is usually a form of a legal trust document, even attorneys recognize the prominence of accountants regarding the decision and analysis of determining the most appropriate retirement savings vehicle.

Benjamin L. Grosz, a tax and benefits attorney at Ivins, Phillips & Barker in Washington, DC, says, “I’d recommend that a business owner discuss with their tax professional (and benefits professional, if applicable) before pursuing.”

The multi-vendor approach is not limited to lawyers. Investment advisers, too, see the need for plan sponsors to begin their search of the right retirement plan with the accountant. Charles J. Stevens, Jr., Principal at Evergreen Financial, LLC in Plymouth, Massachusetts, recommends small business owners “ask for suggestions and referrals from their CPA,” stressing the plan sponsor must “look for a vendor that’s not beholden to a specific product or company or provider.”

In short, the retirement plan industry has been moving away from the one-stop shopping model for some time now. The DOL’s new Conflict-of-Interest (aka “Fiduciary”) Rule might just finally kill that model for good.

Instant Insights /

Which type of vendor is best suited to advise on plan design?

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