Are You Among the 38%?

December 7, 2017—A record number of 401(k) and 403(b) plan sponsors – 38% – are actively seeking new plan advisors, according to a recent Fidelity Investments survey. That’s not a surprise given changes in the retirement plan industry. Among other things, the Department of Labor’s new Fiduciary Rule requires employers to confirm their advisors are acting as fiduciaries and in the best interests of their clients. Advisors who are unprepared have caused some employers to interview other advisors.

But that’s not the only reason to consider a new advisor. There’s the opportunity to improve company retirement plans. A thorough search can locate an advisor providing access to strong investments as well as expert guidance in all aspects of plan management. Some advisors will even reduce a plan fiduciary’s risk by accepting delegation to serve as a named fiduciary to the company plan.

For help in evaluating a prospective – or existing – advisor, I offer these questions:

  • What kind of advisor are you? Advisors may be Broker-Dealers, Insurance Companies, Registered Investment Advisor firms, to name a few. Generally, a broker or an insurance representative is compensated by the funds in the name-brand plan they sell. Because of this, their advice can be “conflicted.” This did not change with the implementation of the Fiduciary Rule. Pricing methods are changing because of the Fiduciary Rule, but plan sponsors should understand the way an advisor is compensated and determine whether that method creates a potential interest conflict. Hiring a Registered Investment Advisor helps avoid conflicts. RIAs charge the plan or sponsor a fee-for-service and are not compensated by the funds they recommend.
  • What kind of investments do you offer? Many advisors offer 401(k) or 403(b) platforms that limit access to either the “proprietary” funds marketed by the platform or to outside funds with high fees. Some advisors, however, access a wide range of investment managers, allowing them to recommend the “best of the best” in each fund category.
  • Does your plan provide professional investment management? A diversified portfolio that addresses the goals and financial position of a plan participant is an optimum retirement investment. Some advisors construct and manage model portfolios, which increase the likelihood that the portfolio held by the participant will be a good fit. Conversely, a Target Date Fund is selected solely on an estimated retirement date.
  • What kind of guidance and financial education will my employees receive? Look for an advisor who offers participants individual guidance on how to properly invest their account. Determine whether education that addresses a broad range of topics – from saving for children’s college education to estate planning – is provided. Helping employees make wise financial decisions now helps them better prepare for retirement.
  • How will you improve the management of my plan? Company retirement plans work better when the efforts of all service providers work together. Look for an advisor who is both knowledgeable in all plan areas and will work closely with the plan’s third-party administrator, recordkeeper and other providers. Ask for examples of how they work closely. Will your advisor attend plan design meetings with your TPA? Will they intercede on your behalf if a participant recordkeeping issue arises?
  • How will you help our company stay compliant under ERISA? Plan administration can be eased when an advisor advises on compliance. A comprehensive advisor-led compliance program will guide employers on the plan documents and service agreements that must be maintained, the participant notifications that must be distributed, investment selection and monitoring documentation, fee benchmarking procedures, timelines and deadlines, and administrative errors to be avoided. Some advisors also help employers fulfill compliance responsibilities and maintain compliance documentation.
  • Can you reduce my fiduciary risk? ERISA requires that plan sponsor fiduciaries be expert in investment selection and monitoring, but allows employers to delegate their responsibility to a “qualified expert.” When properly implemented, the advisor replaces the plan sponsor managers as the plan fiduciary responsible – and potentially liable – for selection and monitoring of plan investments. Frequent lawsuits challenging plan sponsor fiduciaries’ prudent investment review demonstrate the value of this advisor service.

A final step in any advisor evaluation should include a visit to and Among other things, these sites disclose any complaints or disciplinary actions against an advisor.

Please call me if you’d like me to elaborate on any of the evaluation issues shared above or if I can be helpful in any other area of your 401(k) or 403(b) plan.

This blog is written to help make the lives of plan sponsors easier in the process of meeting legal requirements under ERISA for their defined contribution plans. Please understand that reading this blog should not alone take the place of a one-on-one consultation regarding the needs of your specific plan, and hence cannot be a guarantee against fiduciary breaches.