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Technology: Key Role in the Future for TPAs

Today there is a growing reliance on TPAs to deliver more technology-driven solutions that enhance an advisor’s ability to win new clients and keep existing ones. This high-cost proposition squeezes profit margins for small TPAs at a time when fee compression has already cannibalized revenues.

In the article “Tech Solutions the Key to TPAs’ Future,” which appeared in the Summer 2016 issue of Plan Consultant, David J. Witz discusses how technology can serve and assist a TPA in better competing and meeting the challenges changes taking place in the marketplace pose.

Investments that large bundled service providers have made in technology solutions can not only help their small TPA partners, writes Witz — they also enhance their ability to win direct business. Not only that, he argues, “many bundled providers are also product manufacturers that draw additional revenue from proprietary or subadvised investment options — revenue that may be deployed for technology enhancements.”

Witz says that “although TPAs are not product manufacturers, they have enjoyed the benefits of receiving a portion of the asset-based fees charged by recordkeepers in the past,” but warns that “this is quickly disappearing as the market demands pricing that is not linked to plan assets for administrative services.”

The critical question for TPAs to address today, argues Witz, is: what action they must take to remain relevant five years from now. He says that the bundled providers suggest:

  • acquisition;

  • heavy investment in new proprietary and non-proprietary technology; and

  • dedication to a multi-revenue solution platform that includes proprietary and sub-advised investment options.

And data is a silver lining in the effort to compete in the future, argues Witz. “A local TPA has data on plans that others don’t have — data that is valuable and that can be monetized to create reports that provide documentation to support procedural prudence and fiduciary governance, impact outcomes, assist with plan design — and that, when monetized, encourages advisors to stay loyal,” he writes.

Further, technology solutions will build loyalty with advisors, Witz further argues, and developing new technology that will support advisors’ ability to stay focused on business development, client relationships and vendor management will enhance TPAs’ opportunity to build the value of their business and succeed.

Time is of the essence, Witz suggests, pointing out that it will be easier and less expensive for early adopters to make the necessary adjustments. Not only that, the Department of Labor’s fiduciary rule, he says, creates “an impetus for new technology to support what could be an army of dabblers that become fee-based Series 65 RIAs now that the rule has been finalized. A TPA that has tools in place to support this new paradigm is in the best position to build scale quickly.”

In addition to this article, the summer issue of Plan Consultant includes the cover story, “The Rise of Robo Recordkeeping,” as well as feature articles about the demise of the ERPA program, ASPPA’s role in fighting the IRS’ small-plan audit program in the late 1980s and early 1990s, and a primer on ESOPs as they turn 60. The issue also features insights from thought leaders Lauren Bloom, Thomas E. Clark, Nevin Adams, Brian Graff, Joe Nichols and others.

To view the article, “Tech Solutions the Key to TPAs’ Future,” click here. And to download a pdf of the entire 68-page summer issue, click here.