As an employer providing a retirement plan, you may be wondering how to find a 401(k) advisor that is right for you and your employees. And with all the types of firms and plans available, how can you know who to trust?
To ensure you partner with an advisor who is the best fit for your business and employees, consider factors such as fiduciary responsibility (perhaps the most important), services, and the level of support provided.
As a business offering a 401(k) plan, you must understand your goals and your employees’ needs—and don’t be afraid to ask questions! Look for an advisor who provides the services and guidance you need and genuinely cares about building a relationship with you and your team.
401(k) Advisor Fiduciary Responsibility
If there’s one thing we hope you’ll take away from this article, it’s the importance of hiring a fiduciary as your 401(k) advisor. This means they are legally obligated to act in the best interest of the plan participants. Working with a fiduciary mitigates conflicts of interest so you and your employees can rest assured that the advisor’s recommendations are based on participants’ needs.
A fiduciary’s obligations to the plan sponsor and participants go well beyond those of an advisor that is not a fiduciary—and no, not all advisors are fiduciaries. While many advisors serve as wealth managers for individuals, they typically do not specialize in 401(k) management. These firms and their service models are not set up to deliver retirement plan services to hundreds or thousands of employees, which is exactly what these plan sponsors need from their 401(k) advisor.
It’s also important to note that a fiduciary advisor provides specific investment advice to your employees, while a non-fiduciary advisor can only give “guidance.”
We’ve seen many companies mistakenly hire advisors that are not fiduciaries and do not specialize in 401(k) plans—and more often than not, the plan and employees suffer. Fiduciary advisors are easily identified by the AIF® (Accredited Investment Fiduciary) designation. This designation ensures an advisor has met strict requirements to carry out a fiduciary standard of care and serve the best interests of their clients. Below are a few crucial fiduciary responsibilities.
Compliance & Regulatory Support
It can be challenging to keep up with constant legal changes regarding retirement plans, especially when you don’t have easy access to all of the latest information.
A good advisor should work closely with the plan sponsor and investment committee to ensure that the plan meets or exceeds any oversight requirements imposed by a government agency. Your 401(k) provider should keep up with the latest legislative changes and regulatory requirements by the DOL and IRS, thus helping you, the plan sponsor, remain compliant with ERISA and other relevant laws, avoid costly penalties, and ensure your plan operates smoothly.
Additionally, they can help you stay compliant by:
- Creating an investment committee charter
- Establishing an investment policy statement—and ensuring your plan adheres to it
- Annual investment and fee benchmarking
Employee Education & Engagement
When you work with a 401(k) investment advisor who is a fiduciary, they should also be committed to ongoing employee communication, including enrollment meetings and educational sessions for participants. These should occur in group settings, one-on-one meetings, in-person, via Zoom, or by phone calls—whatever it takes to reach and resonate with all employees.
Simply put, any method that will increase employee engagement should be offered and delivered by an advisor. Informing employees of their participation options, contribution levels, and how to make wise investment decisions is beneficial for both them and the retirement plan’s success.
Benchmarking
As a 401(k) plan sponsor, you have a fiduciary duty to act in the best interest of the plan participants and their beneficiaries. This involves verifying that fees and expenses are reasonable and regularly monitoring investments and service providers to ensure they align with these standards.
Easier said than done, right? This is another area of your 401(k) plan administrator’s fiduciary duties. They should provide regular benchmarking that:
- Compares plan fees to similar plans to ensure they’re appropriate
- Monitors and compares plan investment options and performance
- Reviews the service quality of service providers (e.g., TPA and recordkeeper)
Benchmarking is considered a best practice, as it mitigates the burden and risk to your business, and is something you should expect from your advisor.
Fee Transparency
Always ask about a 401(k) provider’s fee structure. A fiduciary must disclose how they are compensated, such as through a flat fee, asset-based arrangement, or hourly rate. Beware of advisors who earn commissions on specific products, as this creates a conflict of interest that should not exist with a fiduciary advisor. They must also disclose any indirect compensation, such as revenue sharing or third-party payments.
Not to mention, the fiduciary’s fees must be reasonable in relation to the services provided. They don’t have to be the cheapest, but also shouldn’t be excessive. When benchmarking 401(k) fees, your advisor should be able to demonstrate their fees in comparison to industry standards and similar plans.
Additional Factors to Look for in Your 401(k) Advisor
In addition to fiduciary responsibilities, the following factors are essential to finding the right 401(k) advisor for your business.
Services Provided
As discussed earlier, a reputable advisor should provide employee communication and education, compliance support, and benchmarking. However, they should also provide robust support to ensure your business and employees derive the maximum value from the plan.
This includes designing a plan that meets the needs of the plan sponsor and participants.. A fiduciary shares the various 401(k) plan design options available to you, the results of each on your company, and potential retirement savings for participants. They’re responsible for helping you define expectations and goals to ensure plan success.
Additionally, your advisor should help with vendor selection and management support by:
- Helping you clarify what you need when it comes to vendors like your recordkeeper and TPA
- Guiding the request for proposal (RFP) process by providing questions to ask, or managing the process altogether
- Evaluating vendors’ fees, services, and investment performance is also part of their typical benchmark reporting
- Assisting in reviewing vendor disclosures, contracts, service agreements, and fiduciary responsibilities
- Regularly reviewing these performance areas and recommending changes if vendors aren’t meeting expectations or fees become unreasonable
- Coordinating with vendors to ensure plan documents, filings (like Form 5500), and nondiscrimination testing are done correctly and on time
When you hire a 401(k) advisor who is also a fiduciary, they are obligated to help you make these vendor decisions!
Approach & Support
Select an advisor that genuinely understands your business and employees and is committed to helping you achieve the ideal plan. They should:
- Help you maximize tax advantages associated with offering a company-sponsored retirement plan
- Understand the participants’ risk tolerance
- Customize and explain their plan clearly
- Take much of the stress off your plate with a streamlined retirement plan that helps employees
Finally, look for a 401(k) advisor that prioritizes fostering relationships with you and your employees. Your company needs a consistent, responsive team that is available by phone and email and is adept at simplifying complex concepts easily for you and your team. An advisor who truly cares will reach out regularly and proactively to check in on your plan and needs and find out how things have evolved.
Find a Fiduciary 401(k) Advisor
This might seem like a lot, but navigating the world of 401(k) advisors doesn’t have to be a headache. Choosing the right advisor, especially one who is a fiduciary, truly makes all the difference. You want someone who has your back (and your employees’ back), keeps you compliant without all the jargon-filled stress and confusion, and cares about helping your team build a secure financial future.
Look for the credentials discussed and don’t hesitate to ask about their fees and complete service offerings! It’s about finding a partner who’s as invested in your company’s success as you are.
If you’re ready to simplify your 401(k) plan administration and find the ideal fiduciary match, please reach out today. Our advisors will be happy to help you explore your options and find the best fit for your business.
Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Financial Strategies Retirement Partners (FSRP) is a Registered Investment Adviser. Financial planning services offered by FSRP are separate and unrelated to Commonwealth.