Friend, family or fiduciary. It matters.
Friend Family Fiduciary
Often I talk to employers about their retirement plan and hear that their retirement plan advisor is a friend, family member or someone related to an influential client. From a professional perspective there appears to be no harm in that choice. An advisor is an advisor so I might as well “take care” of someone you know. Further, would it make sense to endear the influential client to further secure the firms billable hours.
Fiduciary responsibility and the unsuspecting investment fiduciary- You
That is a conflict of interest. 401k regulations stipulate that the 401k plan is to be run for the benefit of the employees and their beneficiaries. It does not govern what is in the best interest of the employer. I actually think that this is a bit unfair given that most decisions that you make are based on making the owners better off, rather than the needs of the employees. If you are like most employers, you offer your benefits primarily to attract and retain key talent. ERISA retirement plans are the one area where you are a fiduciary.
I believe that plans can be broken down into three key areas:
- Selection and monitoring
- Investments
- Service providers
- Administration and regulatory compliance
- Employee education and advice
Unknown by many, you can have more than one retirement plan advisor on a plan. Think fee-for-service. Based on this example you could have separate retirement plan advisors working in each area. Depending upon the services you need, the existing compensation being paid to the advisor or broker of record could be divided among the other advisors based on the work they each do. I believe that in many cases the advisor compensation is too low based on the work that the participants need. This issue exists for many reasons. Compensation can be increased. The ERISA regulations do not say that you should have the lowest cost plan. It does say that the fees should be reasonable in light of the services being provided.
Independent 401k Review and Independent investment advice
Using this method, one could still work with friends, family and/or the advisors of influential clients while still providing the fiduciary oversight that a knowledgeable retirement plan advisor can provide. A fiduciary investment advisor by law must work in your best interest and not simply add on services intended only to benefit their interests. I recommend that you seek out an independent, fiduciary retirement plan advisor for independent 401(k) review. This just must save you host of problems down the road when a former employee or the Department of Labor questions you on your process of selecting your retirement plan advisor.
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