Car warranties, retirement plans and advisor scenarios

The car my wife drives recently starting making an odd noise. We’ve owned the car for 63 months and have 58,000 miles on it.   The dealership service department determined it was a faulty transmission, and needed to be replaced.  63 months says I’m outside my 60/60,000 powertrain warranty.  How they handled this situation was going to determine whether I ever bought this brand of car again.  Sure enough, and frankly to my surprise, without any prodding or argument from my side, they said they were going to honor the warranty and replace the transmission.

In order to get this done, the manufacturer had to agree to provide the new transmission. In order to get that, the dealership had to go to bat for a long-time loyal customer.

There is no such thing as perfection!

I can’t help but think about the similarities with retirement plans and their advisors. Inevitably, something will go wrong.  It’s just the nature of life: things break, people make mistakes.  The mark of a good provider is not an absence of problems, but a question of how quickly the inevitable problems are solved to the customer’s satisfaction.  I note that when I look up a business on the Better Business Bureau site, I’m much more comfortable seeing a complaint that is resolved then seeing no report whatsoever.

I’ve seen arrangements, though, where the levels of service and problem resolution isn’t a top priority. Certainly advisors are necessary to serve as that advocate, much like the dealership, to go to bat for their client.  However, what about those multiple provider arrangements?   Can the advisor effectively go to bat for the client if there are multiple providers?  It is no secret that most providers make money on money.

  • The more money the client has with the provider, the better service they are going to get.
  • The more money per participant that is in the client plan, the better the service.

Single versus Multiple Advisors

If the plan has a single advisor, then it is likely one of two scenarios. Either the advisor has recommended multiple providers, or the advisor has recommended a single provider, but due to contractual restrictions with a discontinued provider, legacy plan assets exist with that discontinued provider.  In either of these situations, the question is how much influence does the advisor really have with each of the providers when each participant’s plan assets are diluted across multiple providers?  Even if the advisor has influence with the current provider, how much influence can really be exerted on a discontinued provider when the inevitable problem arises?

Multiple Providers and Multiple Advisors

Another possible scenario is multiple providers and multiple advisors. This could even extend to multiple advisors for each of the multiple providers.  Then the question is simply whether anybody has any influence to go to bat for the client with any provider?

Comments I’ve received on prior posts have challenged the concept of single provider versus multiple provider arrangements. The advocates for multiple provider arrangements talk about the benefits of more choice and maintaining individual advisor relationships.  The fact of the matter, though, is that most single providers have adequate choices available to participants today.  In addition, I’m a strong supporter of individual advisors.  I personally employ one.  However, that isn’t the best model for a retirement plan.  Those with advisors are mostly well taken care of.  Those without are not, and unfortunately, in multiple provider arrangements, there are usually too many without.  Finally, multiple providers cause the dilution discussed above, which makes it harder to get top service priority from the service providers.

These are important questions to consider in evaluating an approach for the retirement plan. It’s easy to see where it works with the car dealership, but isn’t always so readily apparent when plan fiduciaries are evaluating their approach.

Affiliation Disclosures

The subject matter in this communication is provided with the understanding that the Principal Financial Group® is not rendering legal, accounting or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.

Plan Sponsor Council of America is not an affiliate of any company of the Principal Financial Group.