Choosing a Retirement Plan Advisor

A Checklist for Retirement Plan Sponsors

Choosing a Retirement Plan Advisor
October 9, 2013

In recent years, many business owners who sponsor a company retirement plan have recognized the importance of reviewing, and in some cases updating, their company’s retirement plan offering. Often, this decision has been driven by market volatility and new regulatory disclosure requirements. In other cases, employee concerns about plan costs or possible legal review have created a sense of urgency. If you are evaluating your company’s retirement plan and are considering hiring a new retirement plan advisor, the following checklist can help you to make a decision.

Two Big Questions for Plan Sponsors

Plan sponsors tend to have two big questions about selecting a retirement plan advisor:

  1. How do we do this?
  2. Where do we start?

For plan sponsors, selecting a financial advisor for the plan is not always easy. Over time, I have found that a simple, straightforward approach – such as a checklist – can simplify the process, making it quicker and easier to discover useful information that can then be used to compare candidates.

Ultimately, you want to know the following four things about a prospective financial advisor:

  1. What specific services do you provide and who will be working with us?
  2. How are you paid?
  3. Can you describe your experience and qualifications?
  4. Do you have a backup plan?

Our Financial Advisor Interview Checklist is a little longer than these four questions. The checklist helps you gather the information you need to meet your responsibilities under ERISA (Employee Retirement Income Security Act), the law that governs retirement plans.

The Financial Advisor Interview Checklist

  1. What specific services will you provide and who will be doing what?
    • Note: Disclosure regulations require advisors to provide this information to you in writing before you engage them. If the candidate can’t provide this information to you in writing, cross them off your list and move on to the next option.
  2. Are you a fiduciary? Do you accept fiduciary responsibility in writing? Are there any activities for which you do not serve as a fiduciary?
    • Hint: ERISA sets conduct standards for those who manage an employee benefit plan and its assets (these people are called fiduciaries). A fiduciary must act in the best interest of the plan participants and beneficiaries. Regulations require that the advisor furnish written acknowledgement of fiduciary or non-fiduciary status for each service they provide. Ideally, you want an advisor who acknowledges ERISA 3(38) investment manager status, since this will allow you to delegate the responsibility and liability for investment decisions to the financial advisor.
  3. What other service providers will be working with our plan and what will they be doing (designating their respective fiduciary or non-fiduciary status)?
    • Will each plan participant have access to personalized one-on-one enrollment and fiduciary investment advice?
    • Do you have a process for identifying and monitoring the investments available to plan participants? If so, can you describe that process?
    • Are model investment portfolios provided? If so, can you furnish a summary of fund allocations, investment performance, expected rate of return and risk level?
    • Will plan participants have access to an online and 24/7 voice response so that they can view and make changes to their accounts?
    • What do you do to help our employees to get the most out of our retirement plan?
    • Do you prepare agendas and meeting minutes for our plan sponsor/trustee meetings with the necessary support documentation to help us demonstrate that we are meeting our responsibilities?
  4. How are you and other service providers (such as the recordkeeper, custodian and third-party administrator) paid?
    • What is each service provider’s estimated annual compensation? How is it calculated?
    • Are you paid different amounts based on which investments participants select?
    • Can you provide a written fee estimate that describes how you are compensated?
  5. What are your qualifications and experience?
    • What training have you completed and what professional certifications do you have?
    • Hint: Try to hire a CERTIFIED FINANCIAL PLANNER™ professional, Accredited Investment
    • Fiduciary®, and/or an Accredited Investment Fiduciary Analyst®.
    • How long have you been active as a retirement plan advisor? With how many retirement plans do you work?
    • Can you tell me the average range and economic situation of the participants in the retirement plans with which you work?
    • Do you have any financial ethics violations?
    • Do you have errors and omissions insurance? Does it cover your activities when working with ERISA retirement plans? (Many financial advisor errors and omissions policies exclude or are vague about ERISA retirement plan coverage.) What are the coverage limits? Can you provide written confirmation of your insurance coverage?
    • Describe your strong and weak points.
  6. How long do you plan to be in business? Do you have a backup plan?
    • Can you provide a brief overview of your firm and its retirement plan operations?
    • With what other members of your firm will we be working? Will they be able to serve us fully if something happens to you? What are their qualifications and experience?

Treat the Interview as a Conversation

Remember, the financial advisor interview process shouldn’t be one-sided. The financial advisor should ask questions about what is most important to you, what you want to accomplish with the retirement plan, and what you like and do not like about your current arrangements. If they don’t ask those questions, how likely do you think it is that he or she will be able to reach your goals?

Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.

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