What should you expect from your defined contribution (DC) plan advisor and how much should you pay? Seems like simple questions but they are not. And get it wrong and you may end up with additional work, employees not on track to retire and even a lawsuit especially with the new DOL fiduciary rule ready to go into effect in 2017.
A Forbes article reviews the basics of what an employer sponsoring a DC should expect from their plan advisor and how to determine if fees are reasonable. Some of the issues that make these questions difficult to answer is that often times the advisor’s fee is embedded in the cost of the funds coming out of what is known revenue sharing bundled with other service providers. Though there is nothing wrong with revenue sharing, it’s incumbent upon an ERISA plan sponsor to determine if fees paid to third parties to help run a plan are reasonable. And cheaper is not always better.
One of the issues is that advisors generally charge a fee based on a percentage of assets but costs are dependent on the services provided. For example, an advisor can provide computer generated quarterly investment reports and attend Investment Committee meetings only for a $100 million plan with 1000 employees while another advisor will conduct one on one meetings for a $10 million with 100 employees as well as the other services. Should each advisor be paid the same percentage of assets or a flat fee based on services provided? Should an advisor with 20 years’ experience and a robust support staff be paid the same as one working solo with five years’ experience?
And then there is the “F” word or whether an advisor is able to serve as a co-fiduciary which the new DOL rule is focused on. More advisors will have to act as co-fiduciaries but not all are qualified or have the resources to back their status if something goes wrong.
All of which begs the most important question which is: What does the plan sponsor want from their plan advisor? Because if you don’t know, then any advisor will do.
Just as with a plan’s record keeper, conducting an advisor RFP every three to five years depending on the size and circumstance of the plan is reasonable along with annual benchmarking. But knowing what questions to ask and which advisors to invite as well as conducting a proper evaluation is beyond what most plan sponsors know so many turn to independent third parties to help. Get the right advisor and everything else is easier for you and your employees.
Check out the article on 401kTV about insights into an advisor RFP by InHub which supports plan sponsors looking to benchmark their current advisor or find a new one.
