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TPA partnering with a financial advisor


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We are a non-producing TPA firm strictly fee based with the clients.  We have an existing financial advisor who is inquiring whether he could bundle his fees with ours, we get paid annually both our fees and his fee, and then cut him a check for his portion at year end.  We would 1099 him for the amount. This is what he is proposing.  Does this sound A-OK for both us as the TPA as well as for him?  

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27 minutes ago, Santo Gold said:

We are a non-producing TPA firm strictly fee based with the clients.  We have an existing financial advisor who is inquiring whether he could bundle his fees with ours, we get paid annually both our fees and his fee, and then cut him a check for his portion at year end.  We would 1099 him for the amount. This is what he is proposing.  Does this sound A-OK for both us as the TPA as well as for him?  

Perfectly fine.  We are also fee only. We did this years ago, but have not had such an arrangement for maybe 25 or 30 years.  Anyway, we had a disclosure on our invoice that said "$X of the above fee will be paid to Agent W for his/her part in servicing your plan. You signature below acknowledges this and approves the payment to Agent W".  Assuming we get the client's signature, we cut a check and 1099 it to the agent.

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Not something I would do.  As long as it's disclosed it should be legal from your end. Not sure this would be the case for the advisor, they are much more tightly regulated than TPAs.  Is this advisor a registered rep?  Or an RIA?   Has he looked into this?

How would other financial advisors perceive this?  Would they want the same, or worse, would they figure you and this advisor are working together such that they would not want to refer business to you?

Why should you bill it for him?  Why not the other way around?  You risk getting "spreadsheeted" and replaced.  Clients tend to evaluate fees by running a Quickbooks payee report based on what they paid the TPA in the prior 12 months, without regard to what was paid (a restatement?  other amendment?  Maybe two years admins based on timing of when the work was done each year)?  They don't look at 408(b)(2) disclosures when they have their P&L to tell them.  They will see they paid you a lot more than the new guy trying to get their plan admin. 

My $0.02.

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(Leaving to others questions about what makes business sense.)

 

Santo Gold, the facts in your query don’t say whether the employer or the plan pays the fees.

 

If the plan pays, you’d want the disclosures to be enough to meet your and the advisor’s conditions under 29 C.F.R. § 2550.408b-2, including its rules about indirect payments.

 

If the advisor is a registered investment adviser, it must disclose (in at least its Form ADV Part 2 brochure and investment-advisory agreement) anything about a person other than the advisee paying the fee, and any indirect collection of the fee.  Even if that’s the other guy’s issue, you might prefer to satisfy yourself that the adviser’s disclosures are sound to help you avoid involvement with a fiduciary’s (the plan administrator’s or the adviser’s, if it is a fiduciary) breach.

 

Also, you might want to design the pay-over arrangement so both portions of an amount paid to you have become no longer plan assets before anything is paid to you.  Remember, even non-discretionary control of plan assets can make one a fiduciary.

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  • 2 weeks later...
18 hours ago, JackS said:

I am a little late to this thread but what on earth could be in this for you?  Are you in the habit of doing others peoples billings for them? 

What's in it is satisfying someone who brings you business and if it's no big deal, why not do it if there are no legal restrictions.

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