Stuart Zimmerman
Stuart Zimmerman
Don't Fear the 401(k)
CPA personal financial advisors are ideally positioned to win 401(k) business in the aftermath of the 2008 financial earthquake.

April 21, 2011
by Stuart Zimmerman, CPA, PFS

On the one hand, 401(k) plans are also a natural — and very desirable — opportunity for the CPA wealth manager. They are comparatively large prospects, they fund in every conceivable market environment and the CPA wealth manager is well positioned to act as a conflict-free, fiduciary advisor to 401(k) plans.

On the other hand, though, the 401(k) plan prospect often seems like a completely different animal to the CPA wealth advisor. There are educational materials to prepare, relationships to coordinate with TPA/recordkeepers and presentations to give.

In the old, pre–2008 days, it was hard for the CPA wealth manager to compete against the industry’s big boys, but the times — they are a’changing! The financial earthquake that occurred in 2008 leveled the playing field for independent advisors in the 401(k) market. No longer can benefits committees simply default to a big financial-services company and feel confident they have fulfilled their fiduciary duty. Now, plan sponsors are seeking the services of true fiduciary advisors in managing their 401(k) plans. At the same time, employees — many of whom badly mismanaged their assets in the market crash and subsequent recovery — are clamoring, not for more options, but for more help.

The upshot is that, in the current market and regulatory environment, you are perhaps better positioned than any other service provider to attract, win and service 401(k) plans.

The question, of course, is … how? How best to pursue the 401(k) opportunity in a way that maximizes your odds of success and minimizes the disruption to the core wealth-management practice?

There are two possible models advisors can use, either of which can work. The key is to be sure that you, the advisor, are out of the processing part of the equation and into the advising/consulting area of expertise.

The Do-It-Yourself Model

Some advisors are quite comfortable meeting the demands of working with 401(k) plans and choose to build their 401(k) program internally. If you elect to go this route, you will need to be capable in three key areas:

1. Communications materials. If you choose to develop your 401(k) practice internally, it is essential that you have a plan for coordinating the production of enrollment materials, enrollment presentations, quarterly trustee reports, ongoing participant education among others. Large publication houses such as Newkirk Publishing can relieve much of this burden, but bear in mind that most of the information such printers provide is generic in nature. Independent advisors have a real opportunity to add value here by producing their own customized materials with real advice, not just generic fluff. However, the time burden of producing these materials can be significant.

2. Qualified Recordkeepers. Nothing will upset a 401(k) client faster than inaccurate or late reporting, poor service standards or mistakes in allocating payroll to the investment options. For this reason, it is vitally important to partner with a well-respected recordkeeper with a robust staff and cutting-edge technology. Participants in plans both small and large now expect web access and daily valuations, so be sure your recordkeeper’s platform is top notch.

3. Fiduciary Best Practices. You will need a qualified resource to help keep you abreast of the fast-changing landscape of ERISA and regulatory requirements, so that you can keep your clients abreast. Consider having a well-regarded ERISA department at a local law firm on retainer for such issues or a consulting group such as the Center for Fiduciary Studies, the leading arbiter of fiduciary best practices.

The Outsource Model

Several service providers have emerged in recent years that have developed robust Turnkey Asset Management Programs (TAMPs) for the 401(k) space and you may find working with a TAMP to be the easiest and most cost-efficient way to compete for 401(k) business. The principal benefit of working with a 401(k) TAMP is that it allows you to essentially “plug and play” their offering into your practice whenever a 401(k) opportunity arises, which keeps you from having to invest the time and money in doing it yourself. The tradeoff, obviously, is TAMP’s fee-for-service charge. Thus, TAMP’s value proposition offer is key in deciding whether it makes sense for your firm to outsource its 401(k) services.

When it comes to vetting a 401(k) TAMP, there are several key factors to consider:

  • Quality of materials. One of the principal benefits of working with a 401(k) TAMP is being able to outsource the production of enrollment and educational materials, reporting, proposals, etc. A good TAMP should provide customized, private-labeled materials that tell your story, not just a story.
  • Investment Philosophy. Some TAMPs employ a passive approach, using either funds from Dimensional Fund Advisors and Vanguard or even exchange-traded funds (ETFs). Others employ active management strategies ranging from tactical asset allocation to extreme market timing, moving 401(k) participants all-in or all-out of the market based on their timing models.

    A TAMP’s investment philosophy and experience are the most important criterion in your evaluation process. Partnering with a firm that takes unnecessary risks in its investment-management approach will dramatically increase the risk both to the plan sponsor and you, the advisor. So be sure to look for a TAMP that demonstrates a steady, prudent investment philosophy, whether it is active or passive in nature.
  • Consulting Expertise: One of the key services a good 401(k) TAMP should offer is consulting on specific plan opportunities. Does the TAMP provide an analysis of your prospect’s current plan? Are there capable, experienced advisors who can help you strategize on how to bring in prospective plans in your area? Your TAMP should not just be a platform, but a true relationship with a partner who will help you in gathering and servicing 401(k) assets.
  • Fiduciary Status: A good TAMP should be willing to serve as an Employee Retirement Income Security Act of 1974 (ERISA) 3(38) investment manager, taking the burden for investment selection off of the plan sponsor. However, bear in mind that while delegating the discretion for investment selection reduces the fiduciary liability of the plan sponsor, the plan sponsor still retains the duty to prudently select and monitor the 3(38) investment manager, a task with which the CPA advisor can certainly assist.


With the pending implementation of the Department of Labor's (DOL) Rule 408(b)2, scheduled for late 2011, the time has never been more ripe for the CPA personal financial specialist to gather 401(k) assets. Once 408(b)2 takes effect, all service providers will have to disclose all fees in a uniform manner and specify whether they are fiduciaries or not. Large financial-services firms that once made it a business practice to obscure these issues will have nowhere to hide, while independent advisors will suddenly find the playing field not just leveled, but leaning heavily their direction.

Don't miss out on this opportunity. Whether you decide to use the services of a 401(k) TAMP or build your practice internally, the opportunity for you to gather 401(k) assets in the years ahead will be unprecedented.

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Stuart Zimmerman, CPA, PFS, is a principal and founder of BAM Advisor Services LLC. He is also a principal and founder of St. Louis, MS-based RIA firm, Buckingham Asset Management, LLC.

* The AICPA’s Personal Financial Planning Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and investment planning advice to individuals and closely held entities. The Personal Financial Planning Section is open to all Regular Members, Associate Members and Non-CPA Section Associate Members of the AICPA. If you are a CPA who wants to demonstrate your expertise in this subject matter, become a Personal Financial Specialist Credential holder. Visit www.aicpa.org/PFP to learn more.