Evaluating Your Retirement Plan Advisor

Sherlock Holmes once asked his friend Watson if he knew how many stairs he climbed up and down every day to their second floor flat. Watson didn’t, and Holmes said, “You see, Watson, but you do not observe.”

Let me ask you, you see your retirement plan advisor at least twice a year (hopefully) but do you really observe what you need to?

Legal Responsibility

As a plan sponsor, you are inundated with calls about your 401(k) and you wave callers off like flies at a picnic. I get that.

The problem is that few small and midsize local companies know whether they have a good advisor. And because they are so busy running a company, if things seem to be running smoothly, no real effort is made to evaluate the plan and the advisor, and besides, many are not sure how to evaluate the advisor anyway. Over just one participant’s career, the amount of money left on the table can be in the hundreds of thousands or even millions. What a shame.

According to the U.S. Supreme Court, as a qualified plan sponsor, it is your ongoing legal responsibility to monitor the retirement plan and any hired providers. Regardless of what a provider may tell you, hiring plan provider(s) does not free you from this ongoing legal responsibility to monitor.

You should ask your retirement plan advisor:

Qualifications – Does your current plan advisor have an AIF and PPC or other specialized designations specific to overseeing retirement plans or is he just a regular broker, advisor, or insurance agent? What is his experience with plans? What is his regulatory record? Does he have a bond and professional insurance?

Monitoring – is there an investment policy statement (IPS) in place for the plan that specifies criteria for choosing and keeping plan investments? If not, why not? Is the fund lineup just a list over which you have little or no say?

Reports – do reports work in harmony with the criteria in the IPS or just show raw numbers?

Costs – are all plan costs a percentage of assets? Hopefully you don’t pay for administration and recordkeeping that way, but that is by far the most common setup. Has a DOL-required cost benchmark report been run in the last 3 years to show how your costs compare to similar plans?

Funds – how do the plan’s funds measure up, not just against an index, but against similar funds? Most reports don’t show this, but without that info, funds may stay in the plan that are not good performers compared to peers. It’s a shame and evidence of poor monitoring. The difference in assets at retirement because of compounding at a rate just 1% lower than it could be, can be hundreds of thousands of dollars per participant.

Participant Engagement – Are participants on track for retirement? Do you know? Do they know? What is being done to improve that?

Design Ideas – Has the advisor brought ideas on improving plan design? Secure Act 2.0 made numerous required changes you should know about and there are other issues in improving plan design to discuss.

I do a detailed, FREE plan evaluation that covers these and other important issues. Let me know if you would like me to evaluate your plan.