Selecting a retirement plan advisor is a crucial decision for any company. Given the complexity of retirement plans in general and the fiduciary responsibilities involved, choosing the right advisor can significantly impact the financial well-being of both your company and your employees. Here are key considerations and best practices to keep in mind when selecting a retirement plan advisor.

Understanding the Role of a Retirement Plan Advisor

A retirement plan advisor plays a pivotal role in assisting plan sponsors in designing, implementing, and managing their retirement plans. They offer expertise in various aspects, including plan design, investment selection, compliance, employee education, and fiduciary oversight. As such, the advisor should be highly knowledgeable about retirement plan regulations, investment options, and industry best practices.

Key Considerations and Best Practices for Plan Sponsors

1. Expertise and experience:

When evaluating potential advisors, plan sponsors should prioritize expertise and experience in retirement plan consulting. Look for advisors with relevant credentials, such as Certified Financial Planners (CFPs), Accredited Investment Fiduciaries (AIFs), or the Chartered Retirement Plans Specialist (CRPS®) designation, along with a track record of success in advising similar-sized companies or industries.

2. Services Offered:

Assess the range of services offered by prospective advisors. Beyond investment management, consider whether they provide assistance with plan design, compliance, employee education and financial wellness, and ongoing plan monitoring. In addition, confirm that they will help manage any RFP (Request For Proposal) or plan fee benchmarking projects. Advisors with a comprehensive suite of services can enhance the effectiveness and efficiency of your company’s retirement plan.

3. Fee Structure and Transparency:

Transparent fee disclosure is an absolute must-have in the selection process. Understand how the advisor is compensated, whether through asset-based fees, hourly rates, or flat fees. Evaluate the reasonableness of fees relative to the services provided and inquire about any potential conflicts of interest.

4. Investment Philosophy and Approach:

Evaluate the advisor's investment philosophy and approach to constructing the plan's investment lineup. Look for advisors who prioritize diversified investment options, low-cost investment vehicles, and a prudent approach to risk management. Assess whether the advisor offers independent investment research and selection.

5. Support Resources:

Consider the support resources offered by the advisor. Assess the availability of dedicated support staff to address inquiries and provide assistance as needed. In addition, it’s a good idea to confirm if the retirement plan advisor has access to experienced and knowledgeable plan provider specialists, such as ERISA attorneys, CPAs, or Third Party Administrators (TPAs). They can be called upon, as needed, depending on the complexity of any issues that may arise with your plan in the future.

6. References and Client Feedback:

Request references from current clients or industry peers to gauge the advisor's reputation and client satisfaction. Inquire about their experience working with the advisor, the quality of service received, and any challenges encountered. Client testimonials and case studies can provide valuable insights into the advisor's capabilities and performance.

7. Subjective Stuff: 

A potential retirement plan advisor’s general personality, chemistry and attitude when they meet with you is just as important as if you were hiring a key employee. Are they prepared and organized? Are they positive and confident? Do they listen to you and ask good questions, or do they spend most of the time talking about themselves and their accomplishments? They should also make an effort to gauge your current level of investment knowledge and expertise. As part of the hiring process, make sure you introduce candidates to others in your company as appropriate – especially if they will be members of a plan committee or investment committee team.

8. Accountability:

It’s also very important to ask them how you may hold them accountable. What are their measures of success? For example, how do they measure improvement in employee retirement readiness? What plan benchmarks (such as plan participation and average deferral rates) do they focus on improving? These are two great areas to ask for recent examples. In addition, if they are providing employee education or financial wellness services, what amount of time and frequency of employee meetings are they willing to commit to?

Retirement Plan Advisors, Investments and Fiduciary Responsibilities

When plan sponsors decide to hire a third-party professional advisor to assist with investment decisions, they generally have two types to choose from: investment advisors and investment managers. Each type assumes a different level of fiduciary liability under ERISA (Employee Retirement Income Security Act).

ERISA 3(21) Investment Advisor

• A 3(21) fiduciary is an investment advisor. They provide advice to the plan sponsor but don’t make any decisions themselves regarding plan investment options.
• A 3(21) advisor may draft an investment policy statement for the plan or revise an existing one. This document outlines the types of investments the plan offers and any internal processes for monitoring investments.
• A 3(21) advisor typically takes part in strategic meetings to review plan investments and offer suggestions regarding changes that may benefit the plan. However, the advisor would not have the authority to make those changes themselves. The plan sponsor has the final say on whether to follow the advisor’s recommendations.

ERISA 3(38) Investment Manager

• A 3(38) fiduciary is an investment manager. They have the authority to make changes to the plan’s investment choices.
• The 3(38) fiduciary duties are similar to those of a 3(21) fiduciary. They can review the plan’s investments, monitor them and report back to the plan sponsor. The biggest difference is that a 3(38) fiduciary can go a step further and change the plan investments.