Being registered to sell investments does not mean that a 401k advisor knows anything about a 401(k) other than it has investments. Some advisors to plans are investment generalists and not 401(k) savvy. The few 401k advisors that focus on 401(k)s primarily focus on helping the company’s decision-makers vs. focusing on helping employees use the plan to retire comfortably. Here are some questions to ask to find out what kind of advisor you have.
Are you an independent 401k advisor?
A 401k advisor that is unbiased and independent should understand the landscape of options. Some companies that advisor work for limit the options they can show you. Some providers limit the investment options available based on contractual relationships, not because the investments are good. Beware of the misuse of the term open architecture. It may just mean less limited. If the advisor’s business card is the same as the company that sells the retirement platform and the investments inside them, they are not.
Will you get paid fees or commissions?
401k advisors that sell based on a fee schedule, usually one that has tiers, are registered investment advisors or one of their representatives. These advisors are not incentivized to recommend investments that pay a higher commission. While you may select an advisor that receives a commission, it is good to know what to be on the lookout for.
What retirement plan designations do you have?
401k advisors committed to professionalism attain a specialist designation such as an Accredited Investment Fiduciary, Professional Plan Consultant, Certified Retirement Plan Specialist or Qualified Plan Financial Consultant (QPFC). These designations have continuing education requirements to keep their designees up on the latest in their field. Some firms, such as LPL Financial, have special internal screens such as the Retirement Plan Consulting Program.
Do you have personal retirement planning designations that can help my employees’ retirement plans?
The purpose of any plan governed by the Employee Retirement Income Security Act is providing retirement adequacy. Advisors with designations such as Certified Financial Planner or Chartered Retirement Planning Counselor understand the many ways to turn 401(k) savings into retirement income.
Will you share in my fiduciary responsibility or am I on my own?
This type of 401k advisor is known as an ERISA 3 (21) investment advisor. You have one only if you have a specific document that says so. I recommend having a qualified ERISA attorney review the document to be sure it says what you believe it does.
Are the tools us use to help me monitor my retirement plan independent or ones developed by the investment company?
If your 401k advisor has said all of this and doesn’t have tools to back up the independence claim or how they will strengthen your fiduciary tool set, I would go back to my first point. This investment monitoring report and this fee report will give you an idea of one form of an independent report.
These questions will help you know the lay of the land regarding this 401k advisor and any others you may consider. If you choose a commissioned one that limits your investment access, be sure to do the extra work required to show your employees are getting what they pay for. If you choose an independent, with independent tools and all types of designations that doesn’t mean no work according to the Department of Labor. It should mean a much shorter list of things to be concerned about.
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