Do you expect your financial adviser to give you impartial advice? Do your employees expect your plan’s financial adviser to work in their best interest? Is that what they are getting?
Registered representative aka financial adviser
Most plans use a registered representative as their financial adviser a.k.a. broker of record. Registered representatives (Series 6 and Series 7) work by law under the suitability standard. The suitability rule provides that when a financial representative recommends to an investor the purchase, sale or exchange of any security, a Registered representative shall have reasonable grounds for believing that the recommendation is suitable for such investor upon the basis of the facts, if any, disclosed by such investor as to his or her other security holdings and as to his or her financial situation and needs.
Would you fault the registered representative to sell you the investment that made them the most money? Or that made the firm they work for the most money? If the registered representative works for a company that has an investment and insurance division, would you fault them for promoting the home brand? It is actually illegal for registered representatives to give advice on a retirement plan. What you call advice they likely call recommendation or guidance. Are investment options recommended for your plan based on better compensation for the registered representative or possibly the firm which they work for?
You might think that by hiring a financial adviser aka registered representative affiliated with a name brand firm you have reduced your risk. You can Google lawsuits and the name of the brand name firm and you will typically find actions against registered representatives. While you may feel that the registered representative in the firm they work for should bear all of the blame for plan sponsors that decisions, review of these lawsuits show the most often they do not.
Registered investment advisor aka financial adviser
Some registered investment advisors or investment advisor representatives claim impartiality. Is your registered investment advisor or investment advisor representative acknowledging they are a co-fiduciary to your plan? You’ll know if they are because you will have a contract that states in writing yes. It will also state what their advice is accountable for? In some cases that may be the entire investment menu. That does not mean you are completely covered because there are other fiduciary duties still remaining in your plan, most importantly the duty to monitor everything.
Accredited investment fiduciary a.k.a. financial adviser
Financial advisers that have attained the Accredited Investment Fiduciary Credential show a commitment to keeping abreast of ERISA fiduciary issues. The landscape continues to evolve. An advisor with this credential takes an oath and learns about to up hold modern fiduciary principles. The law under the employee retirement income act holds you to a standard process and not one of outcome. As a practical matter, by having an outcome by which to judge your process this gives you a feedback mechanism to enhance the process as time goes on.
CERTIFIED FINANCIAL PLANNER™ professional aka financial adviser
I believe that you should use a CERTIFIED FINANCIAL PLANNER™ professional to help with an advice and education program to help you and your employees use the plan properly. The core question in saving up for retirement (retirement accumulation) is how best to fill the gap between what you have and the accumulation you want. That boils down to how much to save, at what rate of return (asset allocation) and for how long
Many people are intimidated by the use of online calculators and other tools designed to help them. Mind you that these tools are not fiduciary in nature. Have you actually use them yourself and compare them to other alternatives? If so, or you confident to go all in on their recommendations?
We encourage you to reach your contracts to know exactly what kind of financial adviser you a working with. You should also check the Financial Industry Regulatory Authority (FINRA) website to see if your registered representative has any records violations. I hope that this blog’s been helpful in helping you assess what kind of financial adviser your plan has and concerns you may have regarding impartiality.
(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.
(2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
(3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IL, MI.