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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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).