Most companies with 50-10,000 employees hire a financial advisor to help with their defined contribution (DC) plan but few know what to expect or how to hire the right one for their plan. An article in Forbes reviews what a DC plan sponsor should expect. SHRM has also published a relevant article on the subject.
Though there are no official licenses that a plan advisor must earn, they have very different roles than traditional financial planners or wealth management advisors. There is some overlap between the various roles but a plan advisor is hired by the DC plan to help the company manage their retirement plan as well as help employees manage their retirement savings.
Of the approximately 300,000 active financial advisors, 250,000 are working in some capacity on a DC plan but only 25,000 have minimal experience which includes at least $25 million in DC assets and at least 5 plans. Obviously, many plan sponsors are using financial planners or wealth managers not focused or qualified to work on DC plans.
Once a plan prudently hires a qualified plan advisor, they should look to them for help beyond selecting and monitoring investments. Along with plan design, the advisor may also be tasked with employee communication and education whether through enrollment, group or one on one meetings. Many qualified plan advisors manage costs and fiduciary liability while providing fee transparency to the plan fiduciaries as well as the employees.
A good plan advisor will help set the objectives of the DC plan like recruiting and retaining key employees and translate them into reality.
There are three basic types of advisors including:
- Brokers – Advisors that cannot or will not act as fiduciaries usually paid through commissions.
- 3(21) – Advisors that take on fiduciary status recommending which funds should be selected while helping to monitor them.
- 3(38) – Advisors that take complete fiduciary discretion in selecting and monitoring investments.
Regardless of the type of advisor selected, a plan sponsor must prudently select that advisor to make sure that they are qualified, that the fees are reasonable for the services rendered, and that they continue to prudently discharge their duties.
So how can plan sponsors find the right advisor or conduct due diligence on the one they have? There are groups that train and designate advisors including 401kTV’s affiliate TRAU (The Retirement Plan Advisor University), a collaboration with UCLA Anderson School of Management Executive Education, and there are 3rd parties that help with advisor RFPs. TRAU advisors achieve a C(k)P (Certified 401(k) Professional) designation after three days of live training and 30 hours online plus they must have at least $30 million of DC assets, 10 plans and three years’ experience – see full directory of C(k)Ps.
