I am often told by the owner, CFO or other person responsible for the plan “my retirement plan advisor does everything.” However, judging from their plan’s savings rate and average rate of return, everything means nothing. Rather than have one “do-it-all” advisor, you may want to use advisors focused on specific plan tasks, such as:
- Investment selection and monitoring
- Provider and investment fiduciary monitoring
- Retirement readiness.
Investment focused retirement plan advisor
It’s popular belief that the focus of a retirement plan advisor is the investment menu. However, all help is not the same. Investment professionals may be a registered representative (stockbroker), investment advisor or ERISA 3 (21) investment advisor or ERISA 3 (38) investment manager. I typically find that most business owners and CFO’s don’t know how their advisor is registered and the associated legal accountability.
They often leave the advisor vetting to the advisor’s employer. Investment recommendations of registered representatives aka broker or financial advisor do not have to be in the plan’s best interest. They may serve their employer’s financial interest.
On the other hand, an investment adviser representative must work in your best interest. Making that even better, an ERISA 3 (21) investment advisor or an ERISA 3 (38) investment manager formally sign on as a co-fiduciary. Congress established these titles in the Employee Retirement Income Security Act (ERISA). Unlike a broker, an investment focused ERISA 3(21) investment advisor makes recommendations that must be fiduciary. An ERISA 3 (38) investment manager takes the day-to-day selection and monitoring function of investments off of your hands. This allows you to delegate most of your investment fiduciary liability.
An investment focused retirement plan advisor likely has specialty designations such as Accredited Investment Fiduciary® or Professional Plan Consultant™. You may be working with a professional registered as an investment advisor.
Fiduciary focused retirement plan advisor
You may now be salivating over the prospect of using an ERISA 3(38) investment. Have you checked their qualifications? These qualification may include Chartered Financial Analyst (CFA) or CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designations. No matter the qualifications, you remain responsible for monitoring their activities. To help you with oversight, you may use an ERISA 3(21) investment advisor. A fiduciary focused retirement plan advisor likely has specialty designations such as Accredited Investment Fiduciary® or Professional Plan Consultant™. Each of these designations provides tools to implement the investment process standard expected of you as an ERISA fiduciary.
One of your responsibilities is overseeing fees. Are the fees charged to your plan in line with the services received? The new 408(b) (2) employer Plan Fee Disclosure was meant to aid you in this evaluation. Have you compared it with third party research to see if your plan fees are reasonable? Has your plan elected the 404C participant investment decisions safe harbor? I have found that many CFOs or business owners unknowingly have opted this save harbor. Often this election is made by a CPA completing the tax filing that has no knowledge of ERISA and the annual qualification requirements. You may benefit from having a co—fiduciary retirement plan advisor as your guide.
Retirement readiness focused retirement plan advisor
If no one can retire using your retirement plan is it really a successful retirement plan? Many employees complain that they don’t understand how to use their plan. Many need help figuring out how much to save and how to invest. You can hire a retirement plan advisor focused on helping them answer these questions and more. This type of advisor likely has qualification such as CERTIFIED FINANCIAL PLANNER™ professional, CHARTERED RETIREMENT PLANNING COUNSELOR, etc. They should provide feedback to the plan’s fiduciaries on how well their work is actually helping people with retirement readiness.
Depending upon the size of your plan you may want to hire more than one retirement plan advisor. You may also be well served by a coordinating retirement plan advisor to help bring this altogether.
How do you score?
How does your retirement plan score on these skills?
- Investment selection and monitoring,
- Provider and investment fiduciary monitoring
- Retirement readiness
If you score 3 for 3 awesome. Not only should your employees thank you, but also you have strong case to defend yourself against claims of fiduciary breaches. If you score less than that, your plan should benefit from some tweaks. If you score 0 for 3, then you are working without an advisor that is independent of what your plan’s record-keeper bundles in. Unless you are an educated fiduciary, you are in the highest risk position for lack of fiduciary oversight. If you score 2 for 3 or 1 for 3, you should explore adding those services to your plan. It will not only manage your fiduciary risk management but also help your employees retire with dignity.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
For Plan Sponsor Use Only – Not for Use with Participants or the General Public