Hiring the Right Advisor for Your Retirement Plan

Fact:  Hiring the right advisor for your company's 401(k) or non-profit’s 403(b) retirement plan is one of the most critical decisions you will ever make as a plan sponsor.

Contrary to popular view, the main purpose for hiring a retirement plan advisor is not to pick funds or chase the highest rate of returns. It is the knowledge of process by which investments are prudently selected and fiduciary standards are put into practice that makes a good 401(k) or 403(b) retirement plan advisor indispensable.

You will be choosing your closest and most trusted ally to protect the best interests of your plan's participants, and therefore, to manage your monumental fiduciary liability as a plan sponsor.

Minimize Your Risk:

The right retirement plan advisor has the comprehensive background and team to minimize the risk of huge losses, including individual out-of-pocket penalties, arising from:

  • Lawsuits.
  • Accusations of mishandling.
  • ERISA and Department of Labor (DOL) audits and investigations.
  • Penalties for noncompliance.

The Top Five Reasons Plan Sponsors Hire an Advisor:

At the end of the day, what you want to assess is how well your retirement plan advisor will help you:

  1. Offload or limit your fiduciary liabilities.
  2. Understand your fiduciary responsibilities.
  3. Help your plan participants understand their options, benefits and how to make changes.
  4. Help your plan stay updated and comply with government regulations.
  5. Help you structure a solid plan and adhere to it, as mandated by law.

Highest Fiduciary Comfort Zone - ERISA §3(38):

Your 401(k) or 403(b) retirement plan advisor can be a broker or a registered investment advisor, but brokers are not on the hook to be a fiduciary to you unless their boss (the broker/dealer) allows them to accept that liability.

The safest comfort zone for a plan sponsor is to bring in a registered investment manager qualified under ERISA regulations §3(38). A §3(38) fiduciary may only be a bank, an insurance company, or a registered investment advisor (RIA) subject to the Investment Advisers Act of 1940. Because §3(38) investment managers assume discretion and control of plan investments, they will assume nearly all fiduciary liability in this regard.

Get It in Writing:

In either case, you will want your potential advisor to spell out exactly their fiduciary levels, whether they will assume a §3(38) investment manager role, a co-fiduciary role under §3(21), either full-scope or limited-scope, or any combination, under an ERISA benefit plan.

Interview Questions for a Potential 401(k) or 403(b) Retirement Plan Advisor:

Here is a checklist of some interview questions you might want to ask:

  • Are you a 401(k) and 403(b) plan expert/specialist?  If so, why do you consider yourself to be an expert/specialist?
  • Are you a wealth manager who does 401(k) and 403(b) plans on the side?
  • What are your education and professional credentials?
  • Do you have any advanced degrees?
  • How often do you hold regular meetings with plan sponsors?
  • How would you help develop or review our Investment Policy Statement (IPS)?
  • How often would you check that our investment options line up with our IPS?
  • Can you act as an ERISA §3(21) Co-Fiduciary?
  • Can you act as an ERISA §3(38) Investment Manager and take on 100% of the fiduciary liability for the investments in the plan?
  • How will you provide investment education for plan participants?
  • How would you help us meet the §408(b)(2) fee disclosure rules?
  • How often do you review fees of the plan's fund managers and recordkeeper?
  • What process do you have for disclosing management fees to participants?
  • What is your process for ensuring investment fees are "reasonable" as mandated?
  • What fee benchmarking tools do you use?
  • Who are your other service providers that would work with us?
  • What would be the exact level of the provider's fiduciary responsibilities/liabilities?
  • What are your policies for handling rollovers brought by previous plan participants?
  • What expertise do you or your providers have on ERISA and plan administration?
  • There are so many fund share classes, how do you evaluate them for different plans?
  • Do you have Errors & Omissions (E&O) liability coverage that specifically covers ERISA-based retirement plans?
  • How much Errors & Omissions (E&O) liability coverage do you carry?
  • Would you bring in a Third Party Administrator (TPA)?
  • Would the TPA provide mostly basic administrative services, or do they possess more specific expertise, such as analyzing plan designs to save taxes for highly compensated employees?
  • Would the fees for the TPA's services be fair and reasonable per mandates?

Evaluate Your Advisor's Expertise, Education, Licensing and Resources:

The field of investments is full of licenses and certifications. Some advisors are simply insurance licensed.  Some have passed the "Series 6" exam that is administered by Financial Industry Regulatory Authority (FINRA), which allows the individual to register as a limited representative, and sell mutual funds and variable annuities. Still others have passed FINRA's "Series 7" exam for general securities, stocks and bonds. More experienced financial advisors may obtain the AIF®, or Accredited Investment Fiduciary® designation, or the CRPS®, the Chartered Retirement Plans SpecialistSM designation.  It is a rare and valuable asset to have financial expertise and knowledge of ERISA in the same advisor.  The duty to act prudently is one of a fiduciary’s central responsibilities under ERISA.  Lacking that expertise, a plan sponsor and fiduciary will want to hire someone with that professional knowledge, appropriate licenses and proper registrations.

It is invaluable when a conversation arises about how to handle your unique, more complex situations and your advisor can quickly and confidentially call on a trusted ERISA attorney, third party administrator (TPA) or plan auditor to weigh in for informed decision making.

Summary— Hiring the Right 401(k) or 403(b) Retirement Plan Advisor Helps Plan Sponsors Sleep Well at Night:

Choosing and monitoring the appropriate investments offered in your plan is a serious fiduciary task, as it can impact a participant's retirement experience. There are many good tools and guides for prudent investing, and many employees today opt to choose their own investment mix within your plan's options. It is the protection of all involved from potentially catastrophic fiduciary liability that should be the guiding light for finding the best 401(k) or 403(b) retirement plan advisor for your company's or non-profit’s retirement plan. CFOs, CEOs, Presidents, Executive Directors, and other fiduciaries have personal liability for assets in the company's retirement plan. It is crucial that plan sponsors partner with an independent practice specializing in services that reduce exposure to fiduciary liability.

401(k) & 403(b) Fiduciary Advisors helps to protect plan fiduciaries from liability, while enhancing investment opportunities and helping participants achieve financial security. We are proud of our commitment to excellence, and invite you to see for yourself how our services make retirement plans better.

As always, 401(k) & 403(b) Fiduciary Advisors is available to help you understand your fiduciary responsibilities and risks.