Case Study: How One 401k Vendor Improved Their Ability to Calculate, Track, Optimize and Reconcile Fees and Commissions

Often, 401k vendors rely on elaborate distribution networks to market their products. Distribution fees (for example: sub-transfer agent and shareholder service fees) are charged against the investment options to cover the expense of maintaining this network. When 401k plan investments are purchased through a distribution network, the distribution fees charged against the investment fund are paid to distribution network participants (for example: third party administrators and brokers) for their labor.

Many 401k vendors struggle with the necessary accounting between the distribution fees and crediting the specific plan and/or broker that generated the income. Many vendors are doing calculations manually using Excel. It is a labor intensive and an error prone process with many shortcomings including:

• Possibility of missing income due.
• Hard to track, calculate and reconciles fees/commissions due to the client as well as amounts subsequently payable to their respective distribution partners, and sales representatives.
• No effective way to analyze who is profitable and who is not.
• Miss the ability to provide revenue incentives for high profit distributors market.
• No effective way to determine what types of fees structure is making the most profit.

Overcoming these shortcomings has become even more critical during the past couple of years to many vendors because their revenue has dropped during to the prolonged bear market. These companies are looking for ways to offset this lost revenue and understand which plans and market segments are profitable.

One company, GoldK (www.goldk.com), has turned to Bonaire Software Solutions, LLC (www.bonairesoft.com) for help.

According to John Ludes, VP Sales and Marketing at Bonaire Software, GoldK turned to Bonaire because they could not find any other software that accommodates complex calculations for both revenue/fee collection and commission disbursements. Bonaire's software also allowed GoldK to analyze profitability on a distributor-by-distributor basis.

The fee and revenue-transfer software developed by Bonaire offers GoldK many advantages. It is Web-based and contains a flexible Rules Engine designed to permit GoldK to create user-generated rules that track, calculate, recognize and reconcile receivables due to and from the company and its brokerage unit, GoldK Investment Services, Inc. Amounts subsequently payable to third parties, typically the broker that sell GoldK retirement plans, are also included.

"This system will play an important, bottom-line role in the strategic growth of our company," said David Siewers, Vice President of Finance for GoldK. "We came to the table with a need for a sophisticated application that can produce multiple sets of high-volume transaction and balance-fee computations while generating electronic invoices with an interface to the general ledger. Bonaire was able to customize and integrate the solution to save us significant development time and cost while meeting our strict requirements. Ultimately, GoldK is now in a better position to collect revenue more quickly and structure fees and commissions due to our business partners more efficiently."

TPA's and other 401k plan vendors need to improve their ability to track, calculate, optimize and reconcile fees/commissions and optimize payable to distribution partners. In the end, this is the bottom line and a firm's ability to maximize profitability is potentially at stake.

Rick Meigs, Publisher, 401khelpcenter.com, LLC