Many professionals are referred to as a 401(k) adviser. However, what should that mean? I believe it should not mean someone who simply showed up at one meeting and gets paid an ongoing commission. In some cases the commission is are being paid to a brokerage firm and not to anyone servicing your retirement plan. Yet you and your participants may be paying for having someone called a 401(k) adviser.
Is a 401(k) adviser merely a broker that gets paid a commission?
In the industry you probably have someone called a broker there is actually a form called a broker of record change it’s not called adviser of record change. A broker receives a commission for the work that they do often unseen many people don’t even realize that it is actually being paid. Oftentimes participants don’t see any costs that they are paying for and believe that there are no costs or fees associated with their account. The monies being paid to the broker of record actually go to the brokerage firm that the broker works for and then a percentage of that is shared with the broker. This often makes it feel like someone is doing business with the well-known brokerage firm that they’ve seen advertise on TV yet there is no one specifically looking on this account.
Is a 401(k) adviser a stock picker?
EJ Reynolds, a third party retirement plan administrator, highlights that a 401(k) adviser is more than a stock picker. “Contrary to popular view, the main purpose for hiring a retirement Plan Adviser is not to pick stocks and funds or chase the highest rate of returns. It is the knowledge of process by which investments are selected and fiduciary standards are put into practice that makes good 401(k) advisers indispensable. You will be choosing your closest and most trusted ally to consider the best interests of your plan’s participants, and therefore, to help manage your monumental fiduciary liability as a Plan Sponsor.
Retirement plans governed by ERISA actually requires a prudent investment process. Actually it is not the pics themselves but the process by which those pics were made and monitor is the responsibility of the plan fiduciaries. If you are like most plans you don’t have anyone that has had formal training as an ERISA investment fiduciary. A stockbroker is not a plan fiduciary. That is why I find it curious when often the word adviser is used with respect to someone who was acting as a broker since advice requires a fee to be paid rather than a commission. If you call someone adviser do you expect that somebody stands behind their recommendations, takes some sort of responsibility?
Attorney Jason Roberts of The Pension Resource Institute assigns your fiduciary responsibilities into three categories: investments, administrative and service provider monitoring. Yet you the plan sponsor and fiduciaries are responsible for the oversight of investments administration and service providers. There are 401(k) advisers who actually can help you with each one of Jason’s categories and are willing to become a fiduciary on your plan. I believe that all 401(k) advisers should be a fiduciary on your plan and do so in writing. Using terms that make you have a false sense of confidence simply is not ethical.
Expect a consultant and co-fiduciary as your 401(k) adviser
Therefore ask your 401(k) adviser if they are fiduciary on your plan and for what specific duties are they. If they cannot answer, then look for someone who will. These are just a few categories you can get co-fiduciary assistance with:
- Ongoing Investment Monitoring
- Ongoing Investment Recommendations
- 404(c) Assistance
- Qualified Default Investment Alternative Assistance
The following while not fiduciary can provide major time saving in supporting your fiduciary monitoring:
- Investment Policy Statement
- Service Provider Liaison
- Plan Performance Reporting
- Investment Due Diligence
- Fiduciary Monitoring System
- Fee Comparison and Analysis Evaluation
- Investment line-up comparison
- Plan Design Optimization Report
- Assistance with Changes in Investment Options
- Education Services to Plan Committee
- Benchmarking Services
- Assistance Identifying Plan Fees
Hopefully these increased expectations will go a long way towards helping you save time, manage regulatory risks and prepare your employees for a successful retirement.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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