Investment oversight is one of your most critical responsibilities as a plan sponsor. But how do you know if your retirement plan investment advisor is delivering the services and fiduciary oversight you need? A recent article from consulting and investment advisory firm Retirement Planology outlined key functions to expect from your retirement plan advisor and red flags that might indicate you may not be getting the service you’re paying for.
A quality retirement plan investment advisor should develop and regularly update an Investment Policy Statement (IPS) that guides your fund menu design and helps limit fiduciary liability. While ERISA doesn’t explicitly require a formal IPS document, Retirement Planology noted that thorough documentation of your investment selection and monitoring process is crucial for demonstrating prudent oversight—making an IPS a best practice that can provide valuable protection in the event of a lawsuit or audit.
Your advisor should conduct thorough fund selection due diligence, considering factors like performance history, expense ratios, risk profiles, and how each investment complements your overall lineup. They should help design a diverse menu that allows participants at any career stage to build appropriately balanced portfolios.
Ongoing monitoring is an area where many advisors fall short. Your advisor should establish a regular, documented process for monitoring fund performance and identifying underperforming options. According to Retirement Plantology, “This isn’t a ‘set it and forget it’ situation.” Documentation is a must-have—if you lack reports or evidence of investment evaluation, you’re not demonstrating proper oversight.
Fiduciary responsibility is non-negotiable. Your advisor should act as a fiduciary with a legal obligation to act in participants’ best interests. Understand whether they’re serving as a co-fiduciary or a discretionary fiduciary and how they’re helping mitigate your liability.
Effective advisors provide participant education tailored to your specific employee population. They establish appropriate benchmarks for evaluating investment performance and contextualize market conditions. They should analyze fee structures, ensuring transparent expense ratios and appropriate share classes, while taking special care with default investment options like target date funds.
Speaking of target date funds, your advisor should analyze their glide path and underlying investments to ensure alignment with your employee demographics and plan objectives, Retirement Planology noted. This is especially important since most assets will land in target date funds if your plan uses automatic enrollment. The Department of Labor requires special attention to these default investments, so periodic review is important.
Regulatory compliance updates, collaborative plan design that reflects your organization’s unique needs, and robust data analytics for monitoring should all be part of your advisor’s toolkit.
Retirement Planology identified several warning signs of subpar advisory service. Watch for inadequate performance monitoring, lack of documentation, or poor communication. If you find yourself saying, “I can’t remember when we reviewed the funds” or “I don’t know what these reports mean,” that’s problematic. As the article bluntly stated: “No IPS, no reports, no meeting minutes = not a good advisor. Document it or it didn’t happen.”
Be wary of advisors who ignore participant demographics with a one-size-fits-all approach. Factory workers and lawyers have different needs and decision-making styles—your investment lineup should reflect these differences.
Other warning signs include insufficient fee analysis, an outdated IPS, or poor menu construction with too many investment options causing “choice overload” for participants.
Working with an advisor who specializes in retirement plans ensures you’re getting the expertise your plan deserves. Your advisor should help you strike a balance between providing adequate investment choices without overwhelming participants, while considering investor behavior profiles as key inputs to menu design.
By understanding what to expect from your retirement plan investment advisor, you can better evaluate whether your current advisor is meeting these standards, ensuring your retirement plan serves the needs of your company and your employees. If you’re seeing multiple red flags in your current advisory relationship, it may be time to consider making a switch to ensure your plan and participants receive the specialized expertise and attention they deserve.
