As a benefits professional, the relationship you have with your retirement advisor is a crucial one. Their role is to help you navigate some of the most complicated aspects of your job. A few phrases we often hear employers use to justify sticking it out with their current advisor are (even if the relationship isn’t working): "I think my advisor does everything they're supposed to do, performing an advisor search isn't worth the effort, and we've been doing business with them for years." Relationships are important in business, but it's not always equitable to getting the best service possible and doing what's right for your organization and, most importantly – your employees?
When it comes to the 401(k) or 403(b) Plan offered to your employees, you have a fiduciary duty to act in their best interest.
- Are they being educated about their available investments and saving enough to retire properly?
- Speaking of those investments, is your advisor making sure your plan offers the appropriate funds and monitoring their performance?
- Are you meeting all of your compliance and fiduciary standards? Are your customer service needs being met?
- Are they keeping you up-to-date with the changing landscape of the retirement plan world?
Not every 401(k) or 403(b) plan is the same and that goes for advisors as well. Different advisors offer different services, charge different fees, and have overall varying philosophies. It is important to take the time to reevaluate your current advisor periodically, which is why we've highlighted some signs to know when you should "shop around."
To create a truly effective benefit for employees, you should be looking at the bigger picture. Many advisors today deliver a comprehensive service model and will work with you to create a targeted strategy with specific, measurable milestones. These goals can encompass initiatives including 1) increasing employee participation, 2) improving average saving rates, 3) helping employees make better investment decisions, and other areas you feel are most important to your plan's success.
An advisor can set a clear plan that aligns these goals with strategies that will help you achieve them. Maybe your plan would benefit from implementing new, automatic features, or taking a new approach to employee education and financial wellness, or one of your vendors isn't meeting expectations and you want a change? An advisor can help you with each of these scenarios and guide you through the process to promote employee retirement readiness and financial success which is, after all, the overarching purpose of a retirement plan advisor.
You’re Advisor isn't Sharing the Fiduciary Liability
One of the most stressful components of administering a retirement plan is taking on the fiduciary risk that comes with it. It's your legal duty under ERISA law to provide a plan that serves your employees' best interests, which involves taking on liability with everything from choosing which funds the plan invests in, managing employee feedback or complaints, and DOL or IRS audits that may occur. One great thing about hiring an independent advisor is that they should be taking on this risk as well. Keyword: should. Not all advisors automatically share this role with you and some advisors serve as fiduciaries to monitor your investments only – and not the myriad of other important components to your retirement plan. If your current advisor falls into this category and mitigating the fiduciary risk is something you want, many qualified professionals do this as a standard service. After all, advisors should be the plan experts, and as a fiduciary, you are on the legal hook for making decisions relating to your Plan and its governance under ERISA. Work with your advisor to ensure that they are acting in a fiduciary role, but more importantly, they are providing the proactive oversight to help you fulfill your duties across all aspects of the plan, from investments and plan costs to plan design, compliance, and documentation. If fiduciary liability is burdening you and your advisor isn't helping, it is probably time to reconsider your relationship.
They Aren't Providing Guidance on Plan Design and Oversight
The ins and outs of 401(k) plans are complicated and there's an array of core services that advisors provide to employers and employees. Some of these services help to address DOL-mandated regulations, but as industry standards evolve, advisor services continue to evolve as well. The bar is rising in terms of what an independent advisor will provide you as part of their core offering. Investment option performance reviews should be held consistently with reports you can easily understand, and new investment options should be discussed regularly.
At least annually, your advisor should review with you the plan's design and its provisions to ensure they match how you operate the plan and your organization's goals. If you do make a change to your plan design or integrate new options such as auto-enrollment, your advisor should walk you through this process to ensure you are meeting compliance requirements and that your employees understand these new developments. Your advisor should also be ensuring fiduciary documents, such as your Investment Policy Statement, are up-to-date. While the annual performance review is standard, if you feel you need to have more than one formal meeting with your advisor, don't feel like you're asking too much. Vendor monitoring, plan benchmarking, record retention, etc. are all aspects of your 401(k) plan that your advisor should be leading. If you feel like you should be getting more a different advisor may easily provide you with just that.
Financial Wellness Program is Lacking
With the right advisor, employee education and custom financial wellness programs can be taken to a different level and it can make a difference in both savings rates and retirement readiness. Participation rates are one of the most significant markers of plan success, as well as savings rates, and diversification of participant accounts. Group workshops/webinars, one-on-one coaching sessions, online resources (or a combination), as well as individual access to advisors can make a world of difference in an employee's confidence and ability to save more.
A diversified investment menu with an array of solid options is extremely important to a plan's success, but if employees aren't allowed to learn how to best use this benefit, they likely won't fully value your retirement program. For our clients, we believe it is critically important to deliver education and communication strategies that are targeted and focused. Investors become bored and disinterested in the same “here is how the 401(k) investments work” presentation, so we strive to create interactive and topic-specific programs based on the needs of a particular organization and its employees.
Confusing Fee Structure and Your Advisor isn't Helping
This also falls under the umbrella of administering a plan in your employees’ best interests. Your plan costs cover everything from fund expenses, record keeping, asset management, and advisor compensation. Many of these costs fall back to the employees, which reduces their investment earnings, and subsequently retirement savings. It's important to make sure fees and expenses are both necessary and fairly priced to ensure you're providing the best benefit to your organization and its employees. Straight from the source, the DOL states, "While the law does not specify a permissible level of fees, it does require that fees charged to a plan be 'reasonable’.” These should continue to be monitored after an advisor is hired. On average, plan costs range from 0.50 - 1.45% of a plan’s assets, depending on the size of your plan, services offered, and investments used in the plan.
At a minimum, these should be benchmarked against plans of similar size at least annually and it should all be outlined in the required fee disclosures. Of course, your advisor should be your advocate: Helping you to clearly understand your plan costs, who are being compensated through the plan, and how these costs compare with the marketplace. Further, a specialized advisor will help you negotiate and structure your plan expenses to best match your goals and corporate mission. If your advisor isn't providing you with this disclosure and is not being transparent about their fees, that is a big red flag. The fee structure can be complicated, so if your advisor isn't forthcoming about what exactly the purpose of your plan's fees are and how they're being paid, you should be considering other options.
As an employer, you have many roles: you have fiduciary and compliance standards to keep up with, education and oversight need with the plan’s investments and ever-changing financial markets, and of course, trying to provide a benefit to employees that will ensure they have a dignified retirement. You have a lot of responsibility. If you are paying someone to help you with these important duties, either directly by writing them a check, or indirectly through plan assets, shouldn’t you make sure they're doing exactly that, helping you? If you're having second thoughts about the level of service your retirement plan advisor gives you, consider performing an advisor search to see what else is out there. Having the right advisor can make a significant difference in your plan's success and the employee's overall financial picture.
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