Advisors might want to have another look at their business structure and practices. Plan sponsors certainly are—and in record numbers.
And according to an Alliant 401(k) blog post, it’s not just the approach of the Department of Labor’s fiduciary rule that’s making them reconsider the status quo—although advisors who can’t satisfy sponsor clients on that score are making sponsors think twice about sticking with them.
However, sponsors are also looking at ways to improve their plans, and even offload some fiduciary risk to an advisor willing to act as a named fiduciary to the plan.
For sponsors looking to do either of those things, or who have other goals in mind for their plans, the post suggests questions that they should be asking existing and/or prospective advisors. First of all is to ask advisors what kind of advisors they are—broker-dealers, insurance companies, registered investment advisors or some other type.
Brokers and insurance reps can be problematic to clients these days because of their methods of compensation—if they’re paid by the funds they sell, sponsors might look instead for an RIA that charges a fee for service rather than receiving a commission of some sort.
Then there’s the question of investments. If they’re proprietary, or charge high fees, and that’s all the advisor offers, that can be problematic, too, since broader access to nonproprietary funds can provide not only lower fees but better and more diverse investment options.
If the plan offered by an advisor offers professional investment management, with a diversified portfolio that addresses the goals and financial position of a plan participant, that’s way better than just a target-date fund, which is focused solely on the participant’s estimated retirement date.
Advisors that can provide guidance and financial education, particularly individual advice, offer more bang to the buck for participants, and if that financial education actually helps them understand what to do and why to do it, participants will be better off.
And advisors that will work with third-party administrators, recordkeepers and other service providers will make sponsors’ lives much easier, as long as they know what they’re doing and will step in on the sponsors’ behalf if and when necessary.
They also need to be able to provide robust ERISA compliance, if that’s what a sponsor is seeking, so that the sponsor can satisfy all compliance obligations.
Last but not least, if a sponsor chooses to delegate fiduciary risk to an advisor, the advisor needs to step up to the plate and take on fiduciary responsibilities to the satisfaction of all.