A New Way 2 401k

TPA Revenue Sharing Exposed

Quick Fact: My firm made over $400,000 in revenue share last year. I only share this information as I think readers appreciate a transparent peek into real world numbers and business operations.

This may shock you, but as a TPA (Third Party Administrator) I really wish Revenue Sharing didn’t exist. But why would I pass up on all this free money given to me by the Recordkeepers?

It should be noted that my firm Plan Design Consultants is a compliance only TPA, meaning we don’t do recordkeeping and thus partner with leading Recordkeepers, this allows us to focus on the compliance work….you know the sexy stuff like Adoption Agreements, Compliance Testing, Government filings, etc.

The simple answer to why I would shun all this free money, is that in reality, it’s not really free or a surplus in any way. The fee structure we offer today is in itself cognizant of the potential revenue we will receive. In simple terms our billable fees are lower in situations where we anticipate receiving revenue share. Now, before you start filling that comment box below with vitriol and holy-than-thou business concepts that you would implement if you ran a TPA shop, let me repeat, “I would be happy to see 401k revenue sharing share the same demise as the poor and forgotten Dodo Bird.”

My business life would be so much easier without revenue sharing. So simple, so easy to explain and my gosh would it free up some internal accounting human-hours (normally I would say man-hours…but my 15 year old daughter is teaching me to rid myself of clichés that lessen women and I totally agree with her). Even the idea of life without revenue share brings a serene calm over my entire body and thoughts of rainbows and unicorns.

pdcsalesteam rainbows and unicorns

Now, the above might be an oversimplification of the subject matter. Unfortunately, it gets way more complicated. At PDC we have two distinct fee schedules, one for where we receive revenue share from the RK and one for when we don’t. If you do a deep analytical dive into this concept you will find that smaller revenue share clients (start-ups to 500k) are not on a level playing field with larger clients north of 1 million. (We custom price anything over 3 million). This iniquitous structure is not ideal and we have looked at numerous alternative solutions, but they all come with pros and unfortunately CONS.

If I could escape to my own 401k Utopia the problem would be solved because TPA Revenue Sharing would simply not exist.
Now….close your eyes and imagine me with my homeless man beard and my long flowing locks in the lotus position floating a few feet above the ground in a world filled only with institutional share classes, no revenue share, no failed ADP tests and everyone and I mean everyone…is acting in the best interest of the plan participants. Ommmmmmm…..it’s 401k Utopia.


2 responses to “TPA Revenue Sharing Exposed”

  1. We also used to have two sets of fees. However we switched a number of years ago to a single fee structure. Within this approach we offset our fees to the extent we received revenue sharing. By doing this if the funds more to a class thaat has no revenue share we are not in the bind of having to ‘increase’ our fee.

    Something to think about.

    Liked by 1 person

    • Thanks Thomas! Appreciate the insights. We do something similar with our larger clients. However, my concern with the direct offset approach is more from a marketing and new business perspective. If I was to settle on a single fee structure (direct offset strategy) then that obviously would be a higher priced fee sheet. In the hands of Advisors/Prospects this can be not properly understood or just look expensive. End result, my firm doesn’t make the cut. Unless my Sales Consultant is up close and personal and can fight the good fight (which isn’t always the case when doing high numbers of new sales). In addition, this approach can seem less concrete or defined to the Plan Sponsor, in that they don’t know exactly what offsets they might get…its more of a guessing game (I know that sounds crazy to those of those that actually “GET IT”…..but its a strange world we live in. Anyways, like I said in the post “Unfortunately, it gets way more complicated.” All that said, I really do appreciate your comments/engagement…I love hearing from other 401k Pros.

      Liked by 1 person

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