Saturday, September 06, 2008

Storm "Surge"

Over the past several weeks, I’ve received a dozen different inquiries from providers and advisers, all wanting to know if we’re seeing any pickup in provider changes. Now, aside from the frequency and consistency of the inquiries, they also share two interesting aspects. The first is that—to a person—the inquirers say that, while they are still enjoying a good deal of activity/interest, they have heard that things are slowing down.

What I’ve not been able to figure out, of course, is if they are just nervous that their string of good luck is getting ready to run out, or if they are feeling really confident about their business prowess and are looking for some independent affirmation of same.

Truth be told, I’ve not seen anything to suggest a noteworthy uptick in the number of provider changes—other than the uptick in volume that frequently is associated with changes at the providers themselves (see “Exit Signs”). It’s summer, after all, and if it isn’t quite the activity doldrums that it was once upon a time, the reality is that provider changes are generally committee decisions, committees are made up of people, and people—certainly those with kids—still tend to be out of the office for extended periods of time in the summer. And those absences tend to slow, if not freeze, committee actions.

Will there be more change this year than in years past? Frankly, I doubt it. “Change” may now be the mantra of the 2008 presidential election, but IMHO, for most plan sponsors, change equals work. It’s work to go through a search process, after all (even if a consultant/adviser does most of the legwork), and, some have reminded us in the current election cycle, change is not necessarily for the good. There are risks: that the changeover won’t go smoothly, that the new provider will turn out to be no better—or even that, in ways as yet unanticipated, they will be worse. Furthermore, even the most seamless of transitions imposes change—not only on plan sponsors, but on plan participants. New Web sites, new toll-free call in numbers, different statements, new procedures for handling loans and withdrawals—and the potential for a reinvigorated investment menu—all serve to “inflict” change on plan participants, as well as the plan sponsor.

That’s why, in my experience, plan sponsors approach change with caution (some might term it “prudence”). And most—though they are always interested in improving services and in reducing fees—reasonably find the tasks and uncertainties attendant with a provider change sufficiently daunting to keep them firmly planted (change can be forced on them, of course, by provider exits or by service “missteps”).

However, you can sense a sea change just over the horizon as a new series of fee disclosure initiatives takes hold, both at the plan and participant level. It will take time for those to emerge, of course—even longer for plan fiduciaries to absorb and respond. But respond they will, IMHO, and in short order, the question will go from “what am I paying” to “why am I paying what I am paying?”

It’s a change that will catch some unawares, and, with luck, it’s a change that will drive off the unprepared and uncommitted— those who think they can simply “ride out” the storm. It’s a change that is coming—whether you believe in it, or not.

— Nevin E. Adams, JD

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